- USD/INR remains subdued despite a weekly loss around a record high.
- RBI intervention, China’s economic recovery and weaker US data keep sellers bullish even as inflation and growth fears limit the downside.
- The lack of major data/events hints at a less volatile session ahead.
USD/INR remains directionless around 78.50 in Friday’s Asian session, paring the first weekly gain in three around an all-time high.
Recent moves in the Indian rupee pair could be linked to traders’ indecision and market gloom. Even so, intervention by the Reserve Bank of India (RBI) and talk of further rate hikes underpin the corrective pullback.
“India’s terminal policy repo rate is likely to be at least 6.50% in the current rate hike cycle, as the real policy rate will need to rise above the equilibrium level by about 1 %, according to ICICI Securities Primary Dealership”, according to Reuters.
Elsewhere, improving covid conditions in China and Shanghai’s gradual unlocking plan, buoyed by zero covid cases outside the quarantine zone in recent days, are keeping market sentiment positive, helping Asian currencies recover. stabilize.
On the same line was repeated US data and Fedspeak which weighed on the US Dollar Index (DXY) on a weekly basis, up 0.13% intraday around 103.00 at press time. . On Thursday, Kansas City Fed Chair and FOMC member Ester George said she was comfortable now making half-point rate hikes. However, Minneapolis Federal Reserve Chairman Neel Kashkari mentioned the need for the Fed to be aggressive. Turning to US data, the latest printout of the Federal Reserve Bank of Philadelphia’s manufacturing activity index for May fell to the lowest since May 2020, at 2.6 from 17.6 in April. In addition, initial jobless claims in the week ending May 14 rose to 218,000, the highest level since January, from 197,000 a week ago and expected to rise by 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 below USD/INR prices.
The latest Reuters poll mentions that “the U.S. Federal Reserve will raise interest rates by the end of this year from what was expected just a month ago, keeping alive the already significant risks of a recession”. In addition, International Monetary Fund (IMF) Deputy Managing Director Kenji Okamura recently followed Managing Director Kristalina Georgieva’s signal for monetary policy tightening. The IMF’s Okamura said: “Asian economies need to be aware of contagion risks as a decade of unconventional easing policies by major central banks is being withdrawn faster than expected.”
Amid these games, equity futures are showing modest gains and US Treasury yields are loosening, but the US dollar is paring weekly losses.
Moving on, a lack of major data/events may continue to confuse momentum traders for the day.
Unless it breaks below the March high near 77.17, USD/INR remains on the bull’s radar. That said, the round figure of 78.00 may entertain short-term buyers while the psychological magnet of 80.00 captures the market’s attention.