USD/INR extends losses, decline appears limited due to risk aversion

• The Indian rupee could face challenges following risk-averse sentiment due to a potential slowdown in the US economy.
• Traders are expecting potential RBI interventions to prevent the INR from falling below the 84.00 mark.
• The U.S. dollar remains steady as Friday’s U.S. labor force data reduces the chances of an aggressive Fed rate cut in September.

The Indian Rupee (INR) extended its gains for the second straight session against the US Dollar (USD) on Monday. However, the USD/INR pair could see a near-term appreciation due to a broader decline in Asian equities and currencies, driven by growing concerns over a potential slowdown in the US economy.

Last week, the Reserve Bank of India (RBI) probably intervened several times to support the Indian rupee. Traders are likely to be on the lookout for possible RBI interventions to prevent the INR from falling below the 84.00 mark. Additionally, rising oil prices could put pressure on the INR as India is the world’s third largest oil consumer and importer.

USD/INR’s downside could be limited as the US dollar finds support as Friday’s US employment data reduces the likelihood of an aggressive rate cut by the Federal Reserve (Fed) at its September meeting. United States Nonfarm Payrolls (NFP) added 142,000 jobs in August, below the forecast of 160,000, but an improvement from July’s downwardly revised figure of 89,000.

According to the CME FedWatch tool, markets fully anticipate a rate cut of at least 25 basis points (bps) by the Federal Reserve at its September meeting. The probability of a 50 bps rate cut fell slightly to 29.0%, down from 30.0% a week ago.

Daily Digest Market Movers: Indian rupee appreciates on lower likelihood of aggressive Fed rate cuts

• Federal Reserve (Fed) Bank of Chicago President Austan Goolsbee noted on Friday that Fed officials are beginning to align with broader market sentiment that a policy rate adjustment by the US central bank is imminent, according to CNBC. FXStreet’s FedTracker, which uses a custom AI model to rate Fed officials’ speeches on a scale of 0 to 10, rated Goolsbee’s comments as upbeat, assigning them a score of 3.2.
• India’s foreign reserves hit a record $683.99 billion on August 30, up from $681.69 billion previously. This growth is largely due to a substantial inflow of foreign exchange into the Indian economy, boosted by robust economic growth and the long-awaited inclusion of Indian assets in JPMorgan’s major emerging market debt index, which boosted foreign investment.
• ADP Employment Change showed on Thursday that private sector employment rose by 99,000 in August, following July’s increase of 111,000 and below the estimate of 145,000. Meanwhile, weekly US initial jobless claims rose to 227,000 for the week ended August 30, compared with the previous reading of 232,000 and below the initial consensus of 230,000.
• “India’s composite PMI continued to post strong growth in August, driven by accelerated business activity in the services sector, which expanded at its fastest rate since March. This growth was largely fueled by an increase in new orders, particularly domestic orders,” said Prânjul Bhandari, Chief India Economist at HSBC.
• The World Bank has raised India’s growth forecast to 7% for the current financial year (FY25), up from an earlier projection of 6.6%.
• US JOLTS job openings fell to 7.673 million in July, down from 7.910 million in June, marking the lowest level since January 2021 and below market expectations of 8.10 million.

Technical analysis: USD/INR remains below 84.00, testing support at nine-day EMA

The Indian Rupee is trading around 84.00 for months. Analysis of the daily chart shows that the USD/INR pair is consolidating in the symmetrical triangle pattern, indicating a period of consolidation and a decrease in volatility. However, the 14-day Relative Strength Index (RSI) remains just above the 50 level, suggesting that the overall trend is still bullish.

On the downside, the nine-day EMA at 83.92 acts as immediate support, followed by the lower limit of the symmetrical triangle around the 83.90 level. A break below this level could reinforce the bearish trend and put downward pressure on the USD/INR pair to revise its six-week low at 83.72. Consequently, a drop below the 50 level of the RSI could indicate a shift to a bearish trend.

In terms of resistance, the USD/INR pair is testing the upper boundary of the symmetrical triangle at the 84.00 level. A break above this level could lead the pair to explore the region around its recent high of 84.14 on August 5.

USD/INR: Daily Chart