USD/INR weakens amid Fed rate cut hopes, falling crude oil prices

• The Indian Rupee gains ground in Monday’s early European session. 
• Fed rate cut hopes and lower crude oil prices support the INR. 
• The renewed US Dollar (USD) demand might limit Indian Rupee’s gains. 

The Indian Rupee (INR) strengthens on Monday. The expectation that the US Federal Reserve (Fed) might cut the interest rate in September has lifted the INR. Lower US interest rates could boost capital flows into higher-yielding emerging market assets, benefiting the Indian Rupee. Additionally, the decline of crude oil prices from a four-week high supports the local currency and helps to alleviate the INR’s depreciation, as India is the world's third-biggest oil importer and consumer. 

Nonetheless, the renewed US Dollar (USD) demand amid the cautious mood might undermine the INR. Looking ahead, investors await the Fed's Chair, Jerome Powell, who will testify  on Tuesday. The attention will shift to the US Consumer Price Index (CPI) inflation data for June, which is due on Thursday. 

Daily Digest Market Movers: Indian Rupee remains firm amid positive Indian economic outlook

• "Asian FX took a breather on the back of broad US Dollar weakness ... the risk for Asian currencies, though, remains skewed to the downside, with the Fed staying patient," said Lloyd Chan, senior currency analyst at MUFG Bank.
• Indian benchmark indices opened lower on Monday, with BSE Sensex slipping 161 points to 79,8835 points, while the Nifty50 index fell slightly by 0.06% to 24,310. 
• Foreign Portfolio Investors (FPI) continued to show strong buying interest in Indian equities with net inflows of about $1 billion in the first week of July 2024, data with depositories showed. 
• US Nonfarm Payrolls (NFP) came in stronger than expected, adding 206K net new jobs in June, according to the US Bureau of Labor Statistics (BLS) on Friday. The previous month saw a sharp downside revision to 218K from the initial reading of 272K.
• The US Average Hourly Earnings declined to 3.9% YoY in June, compared to the previous reading of 4.1%. The Unemployment Rate rose to 4.1% for the first time since December 2021.
• Financial markets are now pricing in a nearly 77% chance of a rate cut from the Fed in September, up from 70% before the US employment report, according to the CME FedWatch tool. 

Technical analysis: USD/INR continues oscillating within a range

The Indian Rupee trades on a stronger note on the day. The uptrend of the USD/INR pair prevails in the long term as it is above the key 100-day Exponential Moving Average (EMA) on the daily timeframe. 

In the near term, the pair has been capped within the familiar trading range for a couple of months already since March 21. The further consolidation looks favourable as the 14-day Relative Strength Index (RSI) hovers around the 50-midline, indicating neutral momentum. 

The first bullish target to watch for USD/INR is 83.60, a high of July 4. Further north, the next hurdle is seen at the record time of 83.75. A decisive break above this level will see a rally to the 84.00 psychological level.

On the flip side, the potential support level is located at 83.35, the 100-day EMA. A breach of this level will expose the 83.00 round mark, followed by 82.82, a low of January 12.