- USD/INR extends bounce off seven-week low after RBI rate decision.
- RBI cuts Repo rate, leaves Reverse Repo unchanged.
- Sour sentiment favors US Treasury yields DXY but INR benefits from comparatively positive covid conditions, policy optimism.
- US NFP, virus updates and stimulus news could direct short-term moves.
USD/INR picks up bids to 74.12, snapping four-day downtrend, following the RBI announcement on early Friday. In doing so, the rupee (INR) pair considers the mixed moves by the Indian central bank as favoring the buyers while also portraying the pre-NFP trading lull.
In its latest monetary policy decision, the Reserve Bank of India (RBI) cut the Repo rate by 25 basis points (bps) to 3.75% but left Reverse Repo rate unchanged at 3.35%. Following the policy decision, RBI Governor Shktikanta Das said, “Economy is recovering from setback of second wave,” while also adding, “Continued monetary policy support from all sides is necessary to support recovery.”
It’s worth noting that the risk-off mood challenges the USD/INR sellers but the RBI’s resistance to ease monetary policy further, shifting responsibility to the fiscal aides, helps the INR buyers. Additionally, India’s covid conditions are comparatively better than those in the US, China and Australia, which in turn favors the bears.
On the contrary, multi-day high infections in the key economies and fears of stimulus deadlock in the US recently weigh on the risk appetite, underpinning the US dollar. Also highlighting the risk-off mood is the pre-NFP caution and tapering tantrums concerning the Fed.
While today’s US jobs report will help the Fed policymakers better decide the near-term actions, uncertainty over US President Joe Biden’s infrastructure spending could keep the bleak outlook on the table and favor the greenback due to its safe-haven allure.
As per the latest update from Reuters, “The Senate, unable to finalize a $1 trillion infrastructure bill on Thursday, will try again on Saturday when they are scheduled to hold a vote on limiting debate and moving toward passage of the hard-fought legislation.”
Amid these plays, S&P 500 Futures and stocks in Asia-Pacific remain heavy whereas the US 10-year Treasury yields rise 1.8 basis points (bps) after jumping the most in 12 days. Further, the US Dollar Index (DXY) adds 0.10% gains on a day while picking up the bids to 92.35 by the press time.
Having witnessed the initial market reaction to the RBI decision, USD/INR traders will keep their eyes on the US employment report for July for fresh impulse.
Read: Nonfarm Payrolls Preview: Why the dollar could surge in (almost) any scenario
Technical analysis
50-DMA challenges USD/INR sellers around the 74.00 threshold, a break of which can recall the mid-May tops near 73.70 to the charts. Alternatively, 10-DMA and a 13-day-old resistance line, respectively around 74.27 and 74.36, guard the quote’s corrective pullback. Overall, bears have an upper hand over the bulls.