USDINR Extends Gains On Hawkish Fed Comments. What Next?

Summary:
• USDINR trading pair has been on the rise for the past three trading sessions, but is there an end to the rupee's decline?

USDINR continued its ascent on Tuesday, riding on hawkish comments by Federal Reserve Chairperson Jerome Powell and soft Indian PMI data. The pair traded at 83.81 after inching up by 0.1 percent to trade near two-week highs. The rupee is also pressured by the volatility in the global crude oil market as the conflict in the Middle East escalates.

Fed Chairman Powell stated on Monday that the Fed was in no hurry to slash interest rates further. He cautioned that despite the 50 bps cut having been seen as aggressive, subsequent cuts will likely not be as aggressive and will depend on the performance of the economy. Meanwhile, India’s September manufacturing Purchasing Managers Index (PMI) came in at 56.6, lower than the forecast 56.7 percent.

Looking ahead, the USDINR pair will get fresh volatility from the US September ISM Manufacturing PMI and JOLTS employment figures. In addition, two FOMC members, Atlanta Fed’s Raphael Bostic and Richmond’s Tom Barkin will speak later in the day, and their speeches will provide clues on the likelihood of another Fed interest rate cut.

Falling oil prices have been providing support to the rupee in recent weeks, with the commodity trading near YTD lows. However, escalating conflict in the Middle East could result in supply constraints. Also, China’s recent economic stimulus could trigger increased demand for the commodity. That could add downward pressure to the rupee as India is the world’s third-largest importer of dollar-denominated crude oil.

USDINR prediction

The RSI momentum indicator on USDINR signals control by the buyers. The currency pair will likely pivot at 83.75, with the upward trajectory meeting the first resistance at 83.83. However, persistent control by the buyers could break above that level to test 83.91.

Alternatively, moving below 83.75 will favour the sellers, and initial support will likely be at 83.66. However, a stronger bearish momentum could break below that mark to invalidate the upside narrative and test 83.60.