USD/INR strengthens ahead of US employment data

• The Indian rupee is trading bearish in the Asian session on Friday.
• Rising USD demand from importers is undermining the INR, but RBI intervention and Fed rate cut bets on the rise could limit its downside.
• The US employment report for August will be in focus later on Friday.

The Indian Rupee (INR) is extending its decline on Friday after retreating to a record low in the previous session. Traders remain alert for possible interventions by the Reserve Bank of India (RBI) through USD selling, which prevented the INR from depreciating above the crucial 84 level. However, US dollar (USD) demand from oil importers and portfolios foreign could influence the local currency.

Investors will closely monitor August US employment data on Friday, including non-farm payrolls (NFP), the unemployment rate and average hourly earnings. Any sign of further weakening in the labor market could prompt expectations of a deeper rate cut by the Federal Reserve (Fed). This, in turn, could put some selling pressure on the greenback, making other currencies like the Indian rupee more attractive.

Daily Digest Market Movers: Indian rupee falls on USD demand from importers

• “Rupee hits fresh all-time low of Rs 83.99 per dollar as importers, FPIs and oil majors continue to buy, while RBI ensures it does not cross Rs 84.00 per dollar, a psychological level,” he said Anil Kumar Bhansali, Head of Treasury and Chief Executive Officer, Finrex Treasury Advisors LLP.
• Private sector employment rose by 99,000 in August and annual wages rose 4.8 percent year-on-year, Automatic Data Processing (ADP) reported Thursday. This figure followed the 111,000 increase (revised from 122,000) seen in July and below the estimate of 145,000 by a wide margin.
• Initial weekly US jobless claims rose to 227,000, compared to the previous reading of 232,000 (revised from 231,000) and below the initial consensus of 231,000).
• The US ISM services PMI rose to 51.5 in August from 51.4 in July, beating the estimate of 51.1.
• Chicago Fed President Austan Goolsbee said on Friday that the longer-term trend in labor market and inflation data warrants easing the Fed’s interest rate policy soon and then steadily over the next year.

Technical Analysis: USD/INR’s broader trend remains constructive

Indian rupee weakens on that day. The USD/INR pair remains confined in an ascending triangle on the daily chart. However, in the long term, the pair maintains the bullish vibe intact as the price is holding above the 100-day exponential moving average (EMA). The upward momentum is bolstered by the 14-day Relative Strength Index (RSI), which is in bullish territory near 59.55, supporting near-term buyers.

Sustained trading close above the 84.00-84.05 zone, the confluence of the psychological figure, the upper boundary of the triangle and the September 4 high, could see an upside breakout that could take USD/INR up to 84.50.

Any further selling could drag the pair down to the ascending triangle support near 83.90. A break below this level could revise the 100-day EMA at 83.64.