USD/INR falls as likely RBI intervention helps limit decline in Indian Rupee

• The Indian rupee is trading on a stronger note in the Asian session on Friday.
• A deeper Fed rate cut expectation and potential RBI intervention underpin the INR.
• Rising crude oil, weakness in its Asian peers and India’s external outflows could weigh on the local currency.

The Indian Rupee (INR) gains ground on Friday. Traders are increasingly expecting the US Federal Reserve (Fed) to cut interest rates in September, which continues to undercut the US dollar (USD). Moreover, the likely intervention of the Reserve Bank of India (RBI) could prevent the local currency from depreciating.

However, a further rebound in crude oil prices could put some selling pressure on the INR as India is the world’s third largest oil importer and consumer. Similar weakness in Asia and India’s foreign outflows could contribute to the Indian rupee’s downside. In the absence of any headline data from India and the US on Friday, traders will focus on risk sentiment and USD dynamics for now.

Daily Digest Market Movers: Indian rupee strengthens, upside potential appears limited

• RBI’s Monetary Policy Committee (MPC) voted by a 4-2 majority to leave policy rates unchanged and decided to maintain its ‘Withdrawal of Accommodation’ stance.
• India’s central bank maintains its FY25 real Gross Domestic Product (GDP) growth forecast at 7.2% with “equally balanced risks” and maintains its FY25 consumer price index (CPI) inflation forecast to 4.5%.
• RBI Governor Shaktikanta Das said inflation is gradually easing across economies, while medium-term global growth faces significant challenges. However, food price pressures cannot be ignored because of their potential spillover effects.
• The RBI’s Das also said it is premature to talk about the US recession, but the central bank will monitor all incoming data, both internal and external.
• The number of Americans who filed new claims for unemployment benefits rose by 233,000 in the week ended August 3, from 250,000 previously (revised from 249,000). That figure was below the market consensus of 240,000, according to the US Labor Department’s (DoL) report on Thursday.
• Investors expect the Fed to start cutting interest rates in September, with a larger-than-usual cut of 50 basis points (bps) to nearly 58% rates, down from 70% before the data release, according to CME FedWatch Tool.

Technical Analysis: USD/INR’s broader outlook remains positive

The Indian Rupee is trading firmer today. According to the daily chart, the bullish outlook for the USD/INR pair remains in play, with the price holding above the 100-day exponential moving average (EMA) and the uptrend line since June 3. The 14-day Relative Strength Index (RSI) reflects continued bullish strength as it sits above the median line near 65.80.

The first bullish target for USD/INR appears at the psychological barrier of 84.00. Extended gains could pave the way to an all-time high of 84.24. A bullish breakout above this level could lead to a rally to 84.50.

On the other hand, the uptrend line around 83.80 acts as a key contention level for the pair. A breach of the said level could drag the pair lower to the 100-day EMA at 83.51.