USD/INR remains stable due to low volatility, potential RBI interventions

• The Indian rupee may get support from expected foreign inflows into domestic equities following US consumer price index data.
• Traders expect RBI interventions to prevent the INR from weakening beyond the 84.00 level.
• The US inflation report raised the odds of a 25 basis point rate cut by the Fed in September.

The USD/INR pair is moving sideways on Thursday as traders speculate on potential market interventions by the Reserve Bank of India (RBI) to prevent the Indian Rupee (INR) from weakening beyond the 84.00 level. Traders await data on India’s Consumer Price Index and Industrial Production, scheduled for release later in the day.

Additionally, low crude oil prices are providing support for the Indian rupee against the US dollar (USD). India, the world’s third largest oil importer, will benefit from lower import costs. Concerns about falling oil demand offset Hurricane Francine’s impact on oil production in the United States (US), the world’s top crude producer.

The Indian rupee may get support from expected increase in foreign inflows into domestic stocks following August US Consumer Price Index (CPI) data. This US inflation report raised the likelihood that the Federal Reserve (Fed) will begin its easing cycle with a 25 basis point interest rate cut in September.

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 sharply to 15.0%, down from 44.0% a week ago.

Daily Digest Market Movers: Indian rupee strengthens amid weak volatility

• India is considering relaxing investment rules for Chinese firms to boost its manufacturing sector. In addition, the country has eased the issuance of visas for Chinese citizens to support local manufacturing. India’s trade deficit with China has almost doubled since 2020, according to a Reuters report.
• The US consumer price index fell to 2.5% from a year earlier in August, from the previous reading of 2.9%. The index fell below the expected value of 2.6%. Meanwhile, headline CPI was 0.2% on the month. Core CPI excluding food and energy, was unchanged at 3.2% year-on-year. On a monthly basis, the core CPI rose to 0.3% from the previous reading of 0.2%.
• The first US presidential debate between former President Donald Trump and Democratic nominee Kamala Harris of Pennsylvania has been won by Harris, according to a CNN poll. The debate began with a critical focus on the economy, inflation and economic policies.
• On Tuesday, Reuters reported that six Indian bankers indicated that investors are urging the Indian federal government to increase issuance of short-term and green bonds and restart floating-rate bond auctions. These recommendations were discussed during a series of meetings on the government’s borrowing strategy for the second half of the fiscal year.
• Chicago Fed President Austan Goolsbee noted on Friday that Fed officials are beginning to align with broader market sentiment that a policy rate adjustment by the U.S. 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.

Technical Analysis: USD/INR remains below 84.00, testing upper limit of symmetrical triangle

The Indian rupee remains slightly below 84.00 on Thursday. Analysis of the daily chart shows that the USD/INR pair is consolidating in a symmetrical triangle pattern, indicating low volatility and a consolidation phase. However, the 14-day Relative Strength Index (RSI) remains above 50, suggesting that the bullish trend is still in play.

On the downside, the nine-day EMA at 83.93 could serve as immediate support, aligning with the lower boundary of the symmetrical triangle near 83.90. A break below this level could indicate a bearish shift, potentially applying downward pressure on the USD/INR pair and leading it towards a six-week low around 83.72.

On the resistance side, the USD/INR pair is consolidating, along with the upper boundary of the symmetrical triangle near the 84.00 level. A breakout above this point could propel the pair towards the all-time high of 84.14 hit on August 5.

USD/INR: Daily Chart