USDINR Up After Fed Interest Rate Decision and Inflation Data

Summary:
• USDINR rose significantly on Thursday after the Federal Reserve retained interest rates at percent. Could the rupee's losses extend?

USDINR was up in the intraday session on Thursday, gaining 0.1 percent to trade at 83.51. The pair is attempting to reverse Wednesday’s drop of 0.2 percent, and is relying on the fuel provided by the Fed interest rate decision. Meanwhile, the rupee will find support from a forecast-beating Industrial Production data that showed that the world’s fifth-largest economy is still on a strong growth trajectory.

As expected, the Federal Reserve retained interest rates at 5.0 percent in its announcement on Wednesday, with the market now placing a 50 percent chance of a rate hike in September. US treasury bond yields have risen in the aftermath of the interest rate announcement, with benchmark 10-year bonds yielding 4.312 percent as of this writing. That is likely to propel the US dollar, thereby favouring further gains by USDINR.

Meanwhile, both the US and Indian inflation rates dropped in May. The US CPI stood at 3.5 percent year-on-year in May, below the forecast 3.4 percent. On the other hand, India’s headline inflation stood at 4.75 percent, also missing the forecast figure which was at 4.90 percent. These figures have raised the prospects of the Federal Reserve and the RBI lowering interest rates in the third quarter of the year. However, the US dollar has a stronger case for gains against the rupee following last week’s better-than-expected Non Farm Payrolls data. The intraday USDINR exchange rate could also be influenced by the US Producer Price Index (PPI) and Initial Jobless Claims figures which will be out later on Thursday.

Technical analysis

USDINR pivots at 83.10, and the momentum currently favours the buyers to continue with the upside if they keep above that mark. That will likely meet the first resistance at 83.30, but a move above that mark could build the momentum to head higher to test 83.45. On the other hand, a move below the pivot mark will favour the sellers to take control. That will likely see the first support established at 83.00. A breach of that level will invalidate the upside narrative, and could lead to further declines to test 82.85 in extension.