USD/INR recovers despite geopolitical risks, RBI’s MPC rate decision looms

• The Indian Rupee loses traction in Thursday’s Asian session.
• The fear of wider Middle East conflicts, renewed US Dollar demand and higher crude oil prices undermine the INR. 
• All eyes will be on the RBI’s MPC interest rate decision on Thursday, with no change in rate expected. 

The Indian Rupee (INR) weakens on the modest recovery of the Greenback on Thursday, snapping the two-day winning streak. The escalating geopolitical tensions in the Middle East, heightened US Dollar (USD) demand from local importers and a rise in crude oil prices all contribute to the INR’s downside. However, significant weakness might prompt intervention from the Reserve Bank of India (RBI) to stabilize the local currency.

The RBI Monetary Policy Committee (MPC) meeting will take centre stage on Thursday. RBI Governor Shaktikanta Das is scheduled to announce the interest rate decision on Thursday at 4.30 a.m. GMT. The Indian central bank is expected to keep the policy rate at 6.5%. On the US docket, investors will monitor the weekly Initial Jobless Claims for confirmation of slowing economic numbers, particularly employment.  

Daily Digest Market Movers: Indian Rupee remains sensitive to global factors

• State-run banks were offering Dollars, likely on behalf of the RBI, but the intervention was not aggressive, a foreign exchange trader at a large private bank said.
• Chief Economist for India at Deutsche Bank AG, Kaushik Das, said, “We expect both the policy repo rate and monetary stance to remain unchanged in the August policy, though we are of the opinion that the stance should change to neutral.” 
• Deloitte India forecasted India's economy to grow by 7.0-7.2% in the current fiscal year due to strong economic fundamentals and the continuation of domestic policy reforms. 
• US officials are confident that Hezbollah’s and Iran’s response is imminent and initial assessment predicted an early week attack, but the most recent intelligence showed any response may be delayed until Thursday or Friday, per Al Arabiya.
• Rate markets have priced in a roughly 83% chance of a 50 basis points (bps) Fed rate cut in September, with a further two cuts expected through the rest of 2024, according to the CME’s FedWatch Tool. 

Technical analysis: USD/INR’s positive picture remains intact

Indian Rupee trades softer on the day. The chart shows a long-term bullish trend for the USD/INR pair as it holds above the key 100-day Exponential Moving Average (EMA) and the uptrend line since June 3. The 14-day Relative Strength Index (RSI) stands above the midline near 68.20, suggesting sustained upward strength.

The immediate upside barrier for the pair emerges at the 84.00 psychological barrier. A decisive break above this level could draw in enough buying pressure to test the next hurdle at 84.50. 

In the bearish case, the initial contention level to watch is the uptrend line around 83.80.  If the price breaks below this level, it would signal a more significant downside towards the next support level near the 100-day EMA at 83.50.