- USD/INR stays pressured at the lowest level in two weeks.
- Dashing hopes of further easy money policies from RBI, comparatively better virus conditions favor INR bulls.
- Global markets remain mixed after the recent risk-on mood.
- India PM Modi to unveil Omicron battle plan, US Durable Goods Orders, PCE Inflation for November will decorate calendar.
USD/INR pauses four-day downtrend around a fortnight low near 75.45 during early Thursday. The Indian rupee (INR) pair’s latest inaction could be linked to the mixed market sentiment and cautious mood ahead of the key US data, as well as a speech from Indian Prime Minister (PM) Narendra Modi.
Risk appetite grew stronger the previous day amid optimism concerning US President Joe Biden's Build Back Better (BBB) stimulus plan and studies showing that infection with Omicron is significantly less likely to result in hospitalization keep the buyers hopeful.
Also negative for the USD/INR prices were comments from Reserve Bank of India's (RBI) Monetary Policy Committee member Jayanth Varma. "I believe that monetary policy is no longer the right instrument to deal with the Covid-19 pandemic whose economic effects (as opposed to its health effects) have diminished greatly and become more concentrated in narrow pockets of the economy," Varma said at the MPC meeting, according to minutes of the meet released by the RBI, shared by Reuters.
On the same line were hawkish forecasts from Nomura which expect 100 basis points (bps) of repo and reverse repo rate hikes in 2022, as well as a 25 bps repo hike in April policy.
However, China’s biggest-ever lockdown in Xi’an and the White House doubts over the availability of Pfizer’s pill, joined by French rejection to Merck’s COVID-19 drug, challenge the market sentiment.
It’s worth noting that a light calendar and cautious mood before the aforementioned catalysts also probe the mood and restrict USD/INR moves.
Against this backdrop, US 10-year Treasury yields seesaw around 1.457% after declining for the first time in three days on Wednesday whereas the S&P 500 Futures struggle to copy the Wall Street’s gains, up 0.05% around 4,687 by the press time.
Moving on, comments from India PM Modi are likely to boost the market confidence and can exert additional downside pressure on the USD/INR. However, firmer US data and fresh challenges to the market’s risk appetite may help the pair to consolidate recent losses.
Technical analysis
In addition to a clear downside break of 75.65-60 support-turned-resistance area comprising tops marked in April and October, a daily closing below 20-DMA level of 75.54 also favors USD/INR bears to aim for tops marked in November around 75.20.