USD/INR struggles to gain ground amid likely RBI intervention

• The Indian Rupee recovers in Wednesday’s Asian session. 
• Possible RBI intervention to sell USD might support INR; higher crude oil prices, foreign outflows might weigh on its upside. 
• Investors will closely watch the RBI’s MPC interest rate decision on Thursday, with no change in repo rate expected. 

The Indian Rupee (INR) edges higher on Wednesday despite the stronger US Dollar (USD). The downside of the local currency is likely to be limited as potential intervention from the Reserve Bank of India (RBI) might prevent the local currency from volatility in the near term. However, the recovery of crude oil prices amid ongoing geopolitical tensions in the Middle East might drag the INR lower as India is the world’s third-largest consumer of oil. Additionally, the worries about foreign outflows from India and other emerging markets could weigh on the INR. 

All eyes will be on the RBI’s Monetary Policy Committee (MPC) meeting on Thursday. Any indication of a dovish shift in the central bank’s August meeting policy may further exert some selling pressure on the Rupee.

Daily Digest Market Movers: Indian Rupee gains ground amid multiple challenges

• The Reserve Bank of India’s Monetary Policy Committee (MPC) is expected to keep the policy rate at 6.5%. Market experts believe that the RBI is likely to give up its hawkish tilt and pivot to a neutral stance on Thursday.
• “Domestic policy focus is to boost manufacturing and exports, for which one of the things that we may require is a slightly cheaper currency, but current account deficit trends have favored a less undervalued currency,” said Dhiraj Nim, a FX strategist at ANZ.
• S&P Global Ratings noted on Tuesday that India stands out both on growth and external fronts amongst the South Asian countries, and the trajectory of the government’s fiscal deficit will decide on the direction of sovereign ratings.
• India’s economy is expected to expand by 7.0–7.2% in the current fiscal year, owing to strong economic fundamentals and the continuation of domestic policy reforms, according to Deloitte India. 
• The US trade deficit narrowed to $73.1 billion in June as the value of exports of goods and services increased by the most since earlier this year, Commerce Department data showed Tuesday. 

Technical analysis: USD/INR’s constructive outlook prevails

Indian Rupee trades on a weaker note on the day. The USD/INR pair keeps the bullish vibe on the daily timeframe, characterized by holding above the key 100-day Exponential Moving Average (EMA) and being underpinned by the uptrend line since June 3. The 14-day Relative Strength Index (RSI) indicates upward momentum, suggesting potential for a short-term upside.

The upside target appears at the 84.00 psychological barrier. A sustained breakout above the mentioned level could spur buyers to the next hurdle at 84.50. 

On the downside, the uptrend line around 83.78 acts as an initial support level for USD/INR. A breach of this level will see a drop to the 100-day EMA at 83.49. If bearish momentum continues, look for further downside towards the 83.10-83.00 region, representing the round mark and a low of June 4.