USD/INR extends rally ahead of Fed rate decision

• The Indian Rupee weakens in Wednesday’s early Asian session.
• USD demand and cautious mood might undermine the INR, while lower crude oil prices and RBI intervention could limit losses. 
• Investors will closely monitor the Federal Reserve’s (Fed) interest rate decision on Wednesday.

The Indian Rupee (INR) edges lower on Wednesday. The weakness of local currency is largely driven by persistent US Dollar (USD) high demand for month-end payments, dragging the INR lower near record lows over the last few trading sessions. The cautious mood and escalating geopolitical tensions in the Middle East could weigh on the INR. 

However, a further decline in crude oil prices could support the Indian Rupee as India is the third largest consumer of oil behind the US and China. The volatility might be limited as the Reserve Bank of India (RBI) is expected to continue intervening to limit sudden depreciation.

The US Federal Reserve (Fed) is widely anticipated to hold the interest rate in the range of 5.25%-5.50% at its two-day FOMC meeting that concludes on Wednesday. Traders will keep an eye on Fed Chair Jerome Powell’s press conference, which might offer some hints about the Fed’s potential rate cut plans. On the Indian docket, the final reading of HSBC Manufacturing PMI will be published on Thursday, which is projected to improve to 58.5 in July from the previous reading of 58.3.

Daily Digest Market Movers: Indian Rupee remains vulnerable near record lows

• Foreign investors invested in Indian shares for about $509.9 million on July 26, while withdrawing from Indian bonds the same day for around $78.7 million. 
• The RBI has implemented additional restrictions on foreign ownership of newly issued bonds. The focus is on the billions of dollars flowing into the local market due to the inclusion of Indian bonds in JPMorgan's emerging market index, per Bloomberg. 
• The US Job Openings and Labor Turnover Survey (JOLTS) reported 8.184 million job openings in June, above the market expectation of 8.03 million but lower than May’s revised figure of 8.23 million.
• US Consumer Confidence rose to 100.3 in July from the revised figure of 97.8 in June. This figure came in above the market consensus of 99.7, according to the Conference Board on Tuesday.
• With inflation easing faster than estimated in June, the markets have priced in nearly a 64% chance that the Fed will cut rates three times this year — September, November and December, according to the CME FedWatch.

Technical analysis: USD/INR’s positive outlook remains in play

Indian Rupee trades softer on the day. The outlook for the USD/INR pair appears to be bullish on the daily timeframe, as the pair has held above the key 100-day Exponential Moving Average (EMA) and is depicted by an uptrend line since June 3. Additionally, the 14-day Relative Strength Index (RSI) points higher above the midline near 60.25, showing signs of bullish momentum. 

The crucial resistance level will emerge at the all-time high of 83.85. A decisive break above this level could pave the way to the 84.00 psychological level. 

Sustained trading below the uptrend line around 83.72 could see further downside towards 83.51, a low of July 12. Any follow-through selling will expose 83.44, the 100-day EMA.