- USD/INR snaps three-day downtrend near one-week low, recently easing from intraday top.
- Foreign outflows from Asian equities jump to seven-month high in January, US T-bond yields stay firmer around two-year peak.
- Mixed concerns over Wednesday’s RBI rate decisions, covid updates also challenge INR bulls.
- Light calendar, cautious mood ahead of Thursday’s US CPI limit market moves.
USD/INR bears take a breather around weekly bottom near 74.65 during initial Indian trading on Tuesday.
While the broad US dollar weakness could be linked to the Indian rupee (INR) pair’s previous gains, the latest rebound can well be linked to the cautious mood ahead of Wednesday’s Reserve Bank of India (RBI) monetary policy meeting. Also challenging the USD/INR bears are the firmer US Treasury yields and inflation fears, not to forget trade-political jitters, amid a light calendar.
A strong outflow of the foreign funds from Asian equity markets in January could also be held responsible for the pair’s recent recovery moves. A report on Reuters relied on Refinitiv data to point at the highest foreign fund outflow since July 2021. “cross-border investors sold Asian equities worth a net $8.41 billion in South Korea, Taiwan, the Philippines, Vietnam, Indonesia and India in the last month, according to Refinitiv data,” said the news.
On the other hand, indecision over the Fed’s next moves and contrasting statements concerning the US-China trade relation, as well as Ukraine-Russia tussles, underpin the US Treasury yields’ rebound amid a quiet Asian session.
While portraying the mood, the US 10-year Treasury yields added two basis points to 1.936%, close to the highest levels since late 2020, while the US stock future print mild gains around 4,485 at the latest. That said, the benchmark US T-bond coupons eased from a two-year high the previous day while Wall Street marked sluggish closing.
It should be noted, that the recovery in covid conditions in India contrasts with Japan and Hong Kong, which in turn tests INR bulls of late. As per the latest official figures, the active COVID-19 cases and daily infections are at a one-month low.
Moving on, USD/INR traders will pay close attention to the RBI’s verdict for short-term direction. “India's central bank is expected to hold its repo rate steady on Thursday but several economists are expecting an increase in the reverse repo rate as part of a process to reduce surplus liquidity poured into markets earlier in the pandemic,” said Reuters.
For intraday moves, the US Goods and Services Trade Balance for December, expected $-83B versus $-80.2B, will join risk catalysts for near-term directions.
Technical analysis
USD/INR recovery depends upon a clear upside break of the 100-DMA, near 74.75 by the press time, failing to cross the same will direct bears towards the 200-DMA level of 74.28.