USD/INR remains stable due to reduced volatility, possible RBI interventions

• The Indian Rupee could get support from expected foreign capital inflows into domestic equities following the US Consumer Price Index data.
• Traders are expecting RBI interventions to prevent the INR from weakening beyond the 84.00 level.
• The US inflation report has 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 possible market interventions by the Reserve Bank of India (RBI) to prevent the Indian Rupee (INR) from weakening beyond the 84.00 level. Traders are awaiting the Indian Consumer Price Index and Industrial Production data, due later in the day.

Moreover, subdued crude oil prices are providing support to the Indian Rupee against the US Dollar (USD). India, the world’s third-largest oil importer, is benefiting from lower import costs. Concerns over weakened oil demand have offset the impact of Hurricane Francine on oil production in the United States (US), the world’s largest crude producer.

The Indian Rupee could get support from the expected increase in foreign capital inflows into domestic equities following the US Consumer Price Index (CPI) data for August. This US inflation report has increased the likelihood of the Federal Reserve (Fed) starting its easing cycle with a 25 basis point interest rate cut in September.

According to the CME FedWatch tool, markets are fully anticipating at least a 25 basis point rate cut by the Federal Reserve at its September meeting. The probability of a 50 basis point rate cut has dropped sharply to 15.0%, from 44.0% a week ago.

Daily Market Wrap: Indian Rupee consolidates amid reduced volatility

• India is considering relaxing investment rules for Chinese companies to boost its manufacturing sector. In addition, the country has eased visa issuance for Chinese citizens to support local manufacturing. India’s trade deficit with China has nearly doubled since 2020, according to a Reuters report.
• The US Consumer Price Index fell to 2.5% year-on-year in August from the previous reading of 2.9%. The index has fallen below the expected reading of 2.6%. Meanwhile, the headline CPI came in at 0.2% month-on-month. The core CPI excluding food and energy remained unchanged at 3.2% year-on-year. On a monthly basis, the core CPI rose to 0.3% from the previous 0.2%.
• The first US presidential debate between former President Donald Trump and Democratic candidate Kamala Harris in Pennsylvania was 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 auctions of floating-rate bonds. 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 commented on Friday that Fed officials are starting 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 dovish-to-hawkish scale from 0 to 10, rated Goolsbee’s comments as dovish, assigning them a score of 3.2.
• India’s foreign exchange reserves hit a record high of $683.99 billion as of August 30, up from $681.69 billion previously. This increase is largely due to a substantial inflow of foreign exchange into the Indian economy, driven by robust economic growth and the much-awaited inclusion of Indian assets in JPMorgan’s main emerging market debt index, which has boosted foreign investment.

Technical Analysis: USD/INR holds below 84.00, tests upper boundary of symmetrical triangle

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

On the downside, the nine-day exponential moving average (EMA) at 83.93 could serve as immediate support, aligning with the lower boundary of the symmetrical triangle near 83.90. A drop below this level could signal a bearish turn, potentially applying downward pressure on the USD/INR pair and taking it towards its 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 break above this point could propel the pair towards the all-time high of 84.14, recorded on August 5.

USD/INR: Daily Chart