- USD/INR struggles for a clear directions despite pushing back bears.
- RBI’s likely inaction jostles with Fed’s 75 bps dovish hike to challenge traders, Reuters’ poll signals more pain for INR.
- Cautious optimism, sluggish yields test upside momentum ahead of FOMC.
USD/INR remains sidelined around 82.70, mostly unchanged on the day, even as bulls try to defend the weekly gains ahead of the Federal Open Market Committee (FOMC) meeting. That said, the mixed sentiment and hopes of more pain for the Indian rupee (INR) appear to keep the buyers hopeful but the pre-Fed anxiety restricts the upside momentum amid a lack of major directions and an already priced-in 75 bps rate hike.
Headlines from China appeared to have recently favored the market’s sentiment amid sluggish US Treasury yields. The Governor of the People’s Bank of China (PBOC), Yi Gang, recently crossed wires and stated that China's economy remains broadly on track. “We hope the housing market can achieve a soft landing,” added the policymaker. Additionally, an official from the China Banking and Insurance Regulatory Commission (CBIRC) also helped improve the mood while saying that the property sector is now "stable".
The US 10-year Treasury yields remain sidelined near 4.05% at the latest as traders remain divided over the US central bank’s next move given the 75 bps rate hike and hopes favoring easy rate lifts from December. While portraying the mood, S&P 500 Futures snap a two-day downtrend to print a 0.20% intraday upside by the press time.
On the other hand, the Reserve Bank of India (RBI) isn’t expected to announce any major change to its monetary policy during Thursday’s special meeting. India's rupee will recoup only some of its recent losses against the dollar over the coming year as the interest rate gap is set to widen further alongside a worsening current account deficit, according to a Reuters poll of FX strategists.
It’s worth noting that the firmer US data and the recent rebound in oil prices also exert downside pressure on the INR, due to India’s reliance on energy imports and higher current account deficit. That said, WTI crude oil braces for the second weekly run-up as bulls approach $90.00. Further, the US JOLTS Job Openings increased to 10.717M in September versus the 10.0M forecast and upwardly revised 10.28M previous readings. Further, US ISM Manufacturing PMI increased to 50.2 in October versus 50.0 market forecasts and 50.9 prior. On the same line, final readings of the US S&P Global Manufacturing PMI for October rose past 49.9 initial forecasts to 50.4 but stayed below 52.0 readings for the previous month.
Looking forward, the USD/INR traders need to pay close attention to how the Fed can defend the hawks despite announcing a 0.75% rate increase. The point to emphasize will be the rate lift mechanism from December.
Technical analysis
A two-week-old descending resistance line near 83.05 probes USD/INR bulls but the bears have a long road to travel before retaking control.
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