- USD/INR is licking its wounds after a refreshing multi-day low.
- Strong foreign inflows, broad-based US dollar weakness support USD/INR slump.
- Hawkish Fed talks failed to impress USD bulls amid hopes of easy rate hike in February, then policy reversed.
- Markets expect RBI to cap Indian rupee strength around 81.00 round numbers, US Q4 GDP preliminary data also expected.
USD/INR is paring intraday losses around 81.00 after falling to its lowest levels since early November 2022 during Monday trading in India. Meanwhile, the Indian Rupee (INR) pair is cheering a broad weakening of the US Dollar as well as strong inflows into the Indian economy, while depicts fears of Reserve Bank of India (RBI) market intervention.
Been said, US dollar index (DXY) was down 0.30% intraday at 101.65 as of press time, down for a fourth straight day, amid cautious market optimism and the absence of Federal Reserve (Fed) action during the two-week “blackout” period before the meeting Fed.
The dollar’s gauge against six major currencies also underscores market predictions of a slow Fed rate hike for a second straight February meeting, as well as the proximity of a policy turnaround. That said, worse US data and easing inflation woes have fueled dovish market expectations of the US central bank.
Domestically, strong foreign inflows on the back of capital issues by major private players and hedger activity also appeared to support the INR. It should be noted that the jump in India’s foreign exchange reserves to a five-month high also favored USD/INR bears. “India’s foreign exchange reserves rose to $572 billion in the week to January 13, their highest level since early August last year, a Reserve Bank of India (RBI) statistical supplement showed on Friday,” Reuters reported.
It is worth noting that the Lunar New Year holidays in Asia and the lack of major data/events seem to have allowed USD/INR buyers to take risks. In the same vein, there is market talk that the RBI will intervene to protect the pair from slipping below the round mark of 81.00.
Against this backdrop, US Treasury yields remain under pressure, while US stock futures post modest gains, while shares in the Asia-Pacific region trade mixed.
Going forward, the absence of Fedspeak and Chinese traders may limit USD/INR moves. However, the key to clear directions will be the first four-quarter (Q4) results of January’s purchasing managers’ indices (PMI) and US gross domestic product (GDP).
Unless successful trading below the previous support line from early August 2022, near 81.95 by press time, the USD/INR pair is likely to decline towards the November 2022 low near 80.40.