- USD/INR remains mildly bid despite posting a weekly loss around record high.
- RBI intervention, China’s covid recovery and softer US data keep sellers hopeful even as inflation, growth fears limit downside.
- Lack of major data/events hints at less volatile session ahead.
USD/INR remains directionless around 78.50 during Friday’s Asian session, trimming the first weekly gain in three around an all-time high.
The Indian rupee pair’s recent moves could be linked to the traders’ indecision and sluggish markets. Even so, the Reserve Bank of India’s (RBI) intervention and chatters surrounding further rate hikes underpin the corrective pullback.
“India’s terminal policy repo rate will likely be at least 6.50% in the current rate hike cycle as the real policy rate will need to rise above equilibrium level of around 1%, ICICI Securities Primary Dealership says,” per Reuters.
Elsewhere, improvement in China’s covid conditions and Shanghai’s plan of gradual unlock, backed by zero covid cases outside the quarantine area in recent days, keep the market sentiment positive, helping the Asian currencies to stabilize.
On the same line were the US data and repeated Fedspeak that weighed on the US Dollar Index (DXY) on a weekly basis, up 0.13% intraday around 103.00 by the press time. On Thursday, Kansas City Fed President and FOMC member Ester George said she is comfortable now doing half-point rate increases. However, Federal Reserve Bank of Minneapolis President Neel Kashkari mentioned the need for the Fed to be aggressive. Talking about the US data, the latest print of the Federal Reserve Bank of Philadelphia’s Manufacturing Activity Index for May dropped to the lowest reading since May 2020, to 2.6 from 17.6 in April. Further, the Initial Jobless Claims in the week ending on 14 May rose to 218,000, the highest level since January, from 197,000 one week ago and expected a rise of 200,000.
Alternatively, fears of a faster rate hike by the Fed and downbeat comments from the International Monetary Fund (IMF) for Asia put a floor under the USD/INR prices.
The latest Reuters poll mentions, “The US Federal Reserve will lift interest rates higher by the end of this year than anticipated just a month ago, keeping alive already-significant risks of a recession.” Additionally, International Monetary Fund (IMF) Deputy Managing Director Kenji Okamura recently followed Managing Director Kristalina Georgieva’s signal for tighter monetary policy ahead. IMF’s Okamura said, “Asian economies must be mindful of spillover risks as a decade of unconventional easing policies by major central banks is withdrawn faster than expected.”
Amid these plays, stock futures print mild gains and the US Treasury yields ease but the US dollar pares weekly losses.
Moving on, a lack of major data/events can keep troubling the momentum traders for the day.
Technical analysis
Unless declining below March’s high near 77.17, USD/INR remains on the bull’s radar. That said, the 78.00 round figure may entertain short-term buyers while the 80.00 psychological magnet lures the market’s attention.
