The Indian Rupee (INR) opened lower against the US Dollar (USD) on Friday, as the USD/INR pair rose to near 87.60, reflecting a firm Greenback ahead of Federal Reserve (Fed) Chair Jerome Powell’s keynote at the Jackson Hole (JH) Symposium. Market participants are exercising caution, with investors closely watching for signals on the US monetary policy outlook. Nicole Martin, a ProDivia Group broker, explains the core aspects of this matter in her article.
At the time of writing, the US Dollar Index (DXY), which tracks the USD against six major currencies, posted a fresh 10-day high around 98.70, signaling strength in the USD ahead of Powell’s remarks. Analysts suggest that Powell is likely to reiterate a “wait and see” approach regarding interest rates, providing no definitive guidance ahead of upcoming Nonfarm Payrolls (NFP) and Consumer Price Index (CPI) data.
According to Commonwealth Bank of Australia analysts, “The most likely scenario is that Powell won’t provide any specific hints on the Fed’s next move, leaving markets to focus on upcoming economic data.” This caution follows the release of the FOMC minutes from the July policy meeting, which highlighted the committee’s need for clarity on the magnitude and persistence of inflationary pressures, particularly amid rising tariffs and global trade concerns.
Interest Rate Outlook
The CME FedWatch Tool shows that there is roughly a 75% probability of a 25 basis points (bps) rate cut in September, bringing the Fed Funds Rate to 4.00%-4.25%. Traders initially pared some Fed dovish bets during the week but rapidly increased them after the July NFP report revealed significant downward revisions for May and June.
The upcoming speech by Powell is expected to keep the market in a wait-and-watch mode, as investors digest potential monetary policy signals. A cautious approach from the Fed typically boosts the USD against emerging market currencies like the INR, especially in the short term.
Domestic Market Factors
On the domestic front, the Indian Rupee continues to face pressure despite encouraging economic data. The HSBC India Purchasing Managers’ Index (PMI) for August reported a Composite PMI reading of 65.2, up from 61.1 in July, driven by strong business activity in both services and manufacturing sectors.
The Services PMI reached an all-time high of 65.6, reflecting robust new business orders, both domestic and export-oriented.
Investor sentiment in India has been bolstered by expectations of upcoming Goods and Services Tax (GST) reforms, as announced by Prime Minister Narendra Modi. Economists anticipate that these reforms, set for late October near Diwali, could be inflationary, limiting the Reserve Bank of India (RBI)’s ability to aggressively reduce interest rates.
The RBI has already reduced the Repo Rate by 100 bps to 5.5% this year to support economic growth.
Moreover, the overseas investor landscape appears to be stabilizing. After weeks of net selling, Foreign Institutional Investors (FIIs) returned as net buyers in the Indian equity markets, investing a nominal Rs. 63.11 crores between August 18-21.
This slowdown in selling indicates improving market sentiment among global investors.
Technical Analysis: USD/INR
Technically, the USD/INR pair rebounded from a three-week low near 87.00, climbing above the 20-day Exponential Moving Average (EMA) at approximately 87.35. The 14-day Relative Strength Index (RSI) has recovered from the 50.00 midline, signaling renewed bullish momentum.
A further advance could be confirmed if the RSI crosses above 60.00, suggesting potential upside strength for the USD/INR.
Key support levels are noted at the July 28 low of 86.55, which could provide a floor in case of a pullback. Conversely, resistance is expected around the August 11 high of 87.90, a critical hurdle for traders seeking further gains in the pair.
Conclusion
The USD/INR movement reflects a combination of external and domestic factors. Globally, the USD remains supported by expectations of a cautious Fed stance, while in India, the Rupee is influenced by robust PMI data, anticipated GST reforms, and evolving FIIs’ participation in the equity market.
Market participants are closely monitoring Powell’s speech, as any deviation from the anticipated “wait and see” guidance could trigger significant volatility in the USD/INR pair.
As the week progresses, traders will continue to track Fed commentary, US economic data, and domestic policy developments to gauge potential directional moves in the USD/INR. For now, a higher opening signals short-term USD strength, while domestic fundamentals provide some support to the INR, creating a dynamic trading environment for currency strategists and forex participants.
