- USD/INR picks up bids towards all-time high marked earlier in the day.
- RBI intervention fails to underpin INR rebound amid firmer oil prices, hawkish hopes from Fed.
- Indian equities managed to cheer cautious optimism on downbeat US inflation expectations, softer US data.
USD/INR adds strength to overcome the 78.50 hurdle after witnessing the second retreat from 78.46 during Monday’s Asian session, picking up bids to 78.31 by the press time. In doing so, the Indian rupee (INR) pair justifies the US dollar strength while raising doubts about the Reserve Bank of India’s (RBI) intervention.
The US Dollar Index (DXY) posted the first weekly loss in four by the end of Friday’s trading, before the latest rebound to 104.06. The greenback gauge’s recent gains could be linked to the recovery in the US inflation expectations and fears of faster rate hikes, not to forget geopolitical headlines surrounding Russia and China.
On the other hand, the RBI intervention fails to underpin the INR rebound as traders remain unconvinced of the Indian central bank’s ability to tame the inflation woes at home, not to forget the record budget deficit, amid firmer oil prices and risk-off mood.
On Friday, the Business Standard raised concerns over the RBI’s decision to take advance delivery of outstanding long-forward dollar positions to hint at the passive efforts to defend the US dollar.
It’s worth mentioning that Friday’s US data and the latest rebound in the US inflation expectations raised concerns over the previous risk-on mood and propelled the USD/INR prices too. That said, the US New Home Sales for May, by 10.7% versus April’s revised figures of -12.0%, joined the record low print of the final reading of the University of Michigan's Consumer Sentiment Index for June, to 50.0 from 50.2 initial estimates, also drowned the US dollar.
US inflation expectations, as per the 10-year breakeven inflation rate per the St. Louis Federal Reserve (FRED) data, recovered from the four-month low by the end of Friday’s North American session. The inflation gauge’s latest print is 2.56%, following the previous three-day downtrend that poked the lowest levels since February at around 2.50%.
Elsewhere, market sentiment dwindles as the Group of Seven (G7) leaders brace for taking moves against Russia's oil and gold, due to the invasion of Ukraine. Additionally, comments from the White House also challenge the risk appetite and propel the USD/INR prices. saying, “The US is confident that NATO's new strategy document will include "strong" language on China, a White House official said on Sunday, adding that negotiations on how to refer to Beijing were still underway,” per the news from Reuters.
Looking forward, US Durable Goods Orders for May, expected 0.1% versus 0.5% prior, as well as the Pending Home Sales, expected -2.0% versus -3.9% prior, will be important for daily directions. However, Wednesday’s debate of the US and the UK and the European central bankers at the ECB Forum on Central Banking will be an important event to watch for clear market directions.
Technical analysis
A five-week-old rising wedge bearish chart pattern restricts short-term USD/INR moves between 78.10 and 78.60. It’s worth noting that the 10-DMA adds strength to the 78.10 support, a break of which could direct the pair towards March’s high near 77.17.