USD/INR gains momentum amid a stronger Dollar, focus on bond yields and oil prices

• Indian Rupee loses ground on a firmer USD amid upbeat US economic data.
• Rising US Treasury bond yields and oil prices might weigh on market mood, cap the Indian Rupee’s upside.
• The Middle East conflict, US Q3 Gross Domestic Product (GDP), will be closely monitored by traders.

Indian Rupee (INR) loses traction against the US Dollar (USD) on Wednesday. Global factors including rising US Treasury bond yields and oil prices might weigh on market mood. Investors remained worried about the higher-for-longer rate narrative as Federal Reserve (Fed) Chair Jerome Powell said that the economy’s resilience and tight labor markets may require tighter conditions.

Meanwhile, the geopolitical conflicts in the Middle East continue to hang over the market. Any sign of escalating tension might exert selling pressure on the Indian Rupee. Traders will monitor India’s Balance of Payments for the second quarter (Q2) and the preliminary estimate of the US Q3 Gross Domestic Product (GDP) on Thursday. Fed officials will not deliver any speeches this week due to the blackout period ahead of the FOMC meeting on November 1.

Daily Digest Market Movers: Indian Rupee weakens amid the uncertainty, Dollar strengthens

• RBI has provided support for the Indian Rupee for several sessions, with recent days witnessing an aggressive level of intervention.
• US S&P Global Manufacturing PMI for October surged to 50, better than the market expectation of 49.5. The Services PMI rose to 50.9, above the consensus.
• US S&P Global Composite PMI came in at 51 versus 50.2 prior.
• The US Richmond Manufacturing Index for October fell to 3.0 from 5.0 in the previous reading, below the market expectation.
• RBI’s monetary policy committee stated the central bank would continue to focus on maintaining inflation at the target of 4%.
• RBI member Varma is a ‘little more’ positive about India’s economic development than a few months ago, but worries persist since the economy is now ‘disproportionately’ reliant on household spending and other challenges.
• India’s GDP is likely to grow at 6.5% in the current fiscal year, according to the Reserve Bank of India’s projections.
• RBI Chief Das said the central bank will monitor the evolving inflation dynamic amid the uncertainty surrounding food inflation.
• India’s Finance Minister will closely watch the supply chain impact resulting from the ongoing conflicts in the Middle East.
• Growth in India is likely to gain momentum for the rest of 2023 according to the RBI’s October bulletin.
• The International Monetary Fund (IMF) raised its growth forecast for India by 20 basis points (bps) to 6.3% in October.
• The Wholesale Price Index (WPI) in India fell -0.26% YoY in September, from 0.52% in August, falling short of the market expectation of 0.50%.

Technical Analysis: Indian Rupee loses ground amid renewed USD demand

The Indian Rupee trades mildly negative on the day. The USD/INR pair remains well-supported above the 83.00 psychological mark. That being said, a breach of the level would see a drop to 82.82 (low of September 12), followed by 82.65 (low of August 4). On the flip side, the immediate upside barrier to watch is 83.15. The additional upside filter is seen at 83.30 (high of October 4), and the all-time high around 83.45. It’s worth noting that the pair holds above the key 200-day Exponential Moving Average (EMA) on the daily chart, indicating the path of least resistance for the USD/INR pair is to the upside in the short-term.