USD/INR Range-Bound As Rupee Stays Resilient Against Strong Dollar

Summary:
• The USD/INR pair looks set to stay within a tight margin as the end of Indian elections strengthens the rupee and the USD injects NFP fuel.

USD/INR traded flat in the intraday session on Monday, with the rupee absorbing pressure from a strong US dollar powered by strong jobs data. The pair’s exchange rate stood at 83.50 at 0820 UTC, signaling a weakened buying momentum that had seen the dollar win in the previous two sessions. The absence of high-impact data in the next two days means that the pair is likely to be range-bound until Wednesday, when multiple high-impact data headlined by Fed interest rate decision, Indian CPI, and US CPI data come out.

The conclusion of India’s largest elections in history has restored calm to Indian markets, and will provide support to the rupee. INR will also benefit if the market sentiment on oil prices continues to remain bearish, considering that India is the world’s third-largest imported of dollar-denominated oil.  Oil prices declined by 6 percent in May, and are 1.7 percent lower in June, helping the rupee build muscle amidst a jittery election period. However, key report releases by OPEC and International Energy Agency (IEA) could inject fresh impetus into the market.

Elsewhere, the US dollar will likely continue enjoying the fresh propulsion provided by Non-Farm Payrolls data released last Friday.  According to the NFP data, the US economy added 272K non-farm jobs in May, beating the forecast 182K.  This cements the market consensus that the Fed will leave interest rates unchanged on Wednesday, which will supply more fuel for the dollar. Notwithstanding the interest rate announcement, consumer inflation data released via the CPI could also affect investors’ positions.

Technical analysis

The momentum on the USDINR 30-minute chart signals that the buyers are in control. The upward trajectory is likely to continue if the currency pair stays above 83.46 pivot mark. That will likely see USDINR meet the first resistance at 83.51. Extended control by the buyers at that point will break the resistance and potentially push the USDINR exchange rate to 83.55. Alternatively, a break below 83.46 will favour the sellers to take control, with the first support likely to be at 83.43. Extended control by the sellers will break the support and invalidate the upside view. Furthermore, it could build the momentum to move lower and test 83.39.