- USD/INR stays mildly offered, lacks follow-through after Monday’s corrective pullback.
- India retail inflation eased in June, covid conditions recover as well.
- US CPI, coronavirus headlines become the key amid a light calendar in India.
USD/INR remains pressured around 74.50 as Indian markets open for Tuesday’s trading. While the market’s mild optimism weighs on the US dollar (USD) and favors the pair sellers, upbeat catalysts from India also exert downside pressure on the quote.
With a steady rise in vaccinations, India’s coronavirus (COVID-19) conditions are less severe than other Asian counterparts. The latest infection data from the Indian Health Ministry suggests the numbers seesaw around January levels.
India’s June month Consumer Price Index (CPI) eased below 6.58% YoY expected to 6.26%. Even so, the figures remain well above the Reserve Bank of India’s (RBI) target, which in turn tests the USD/INR bears. On the same line could be the fears of rising energy prices and the government’s resistance to reducing fuel tax.
It’s worth noting that the market sentiment remains slightly positive despite the covid fears in the Asia-Pacific region. Hence, the US dollar index (DXY) prints mild losses even as the US 10-year Treasury yields remain positive for the third consecutive day.
Looking forward, the US CPI data for June will be crucial to follow for near-term trade direction whereas the virus updates and chatters over RBI’s next moves may entertain the USD/INR traders as well.
Amid these plays, Morgan Stanley expects India inflation to have likely peaked in June and recede gradually to an average of 5.1% in FY 2022. The bank also said, per Reuters, “With India policy focus on growth, Monetary Policy Committee (MPC) to stay on hold in 2021 with more discussion around inflation”.
Technical analysis
A daily closing below an ascending support line from May 31, near 74.60, directs USD/INR towards the 74.00 threshold. However, a confluence of 100-day and 50-day SMA surrounding 73.60 will be a tough nut to crack for the bears afterward.