Forex News

• USD/INR struggles to defend bulls as it retreats after refreshing monthly high.
• RBI Bulletin hints that inflation numbers warrant policy response.
• Pullback in oil prices also challenges pair buyers.
• US dollar crosses key hurdle to refresh four-week top amid firmer US data, hawkish Fedspeak and risk-aversion.

USD/INR extends pullback from a three-week high as it takes offers to refresh intraday low near 79.70 during the initial Asian session. In doing so, the Indian rupee (INR) pair cheers softer oil prices and the latest hawkish signals from the Reserve Bank of India (RBI) while ignoring the firmer US dollar amid a broad risk-off mood.

“Inflation in India may still require a monetary policy response going forward as it remains above the target range even though it has eased in recent months, the Reserve Bank of India said in its monthly bulletin on Thursday,” per Reuters. The news also mentioned that India's consumer inflation dipped to 6.71% in July, easing for the third month in a row and helped by a slower increase in food and fuel prices but it remained above the RBI's 2% to 6% tolerance band for a seventh straight month.

That said, the WTI crude oil remains pressured around the intraday low of $89.60 as fears of economic slowdown weigh on the energy benchmark. Also exerting downside pressure on the black gold is the firmer US dollar. India’s reliance on energy imports and a record high trade deficit keeps the INR vulnerable to oil price moves.

Further, the US Dollar Index (DXY) begins Friday on a firmer footing as it refreshes the monthly high around 107.70, up for the third consecutive day. Recently, Bloomberg came out with the news that Chinese President Xi Jinping and Russian President Vladimir Putin plan to attend a Group of 20 Summit to be held in Bali later this year, Indonesian President Joko Widodo said in an interview. The news also mentioned that it was the first time the leader of the world’s fourth-most populous nation confirmed both of them were planning to show up at the November summit. The news adds to the market’s anxiety and fears of more drama, which in turn contributed to the flight to safety and helped the DXY to refresh the monthly high after the release.

Elsewhere, San Francisco Fed President Mary Daly mentioned that the (Fed) will continue to raise the rates to "right-size it." The policymaker added that either 50 basis points or a 75 basis points hike would be appropriate while signaling the move for the September rate decision. However, Minneapolis Federal Reserve Neel Kashkari mentioned that, per Reuters, he does not believe the county is currently in a recession. Further, the all-time hawk St. Louis Fed President James Bullard said he is leaning towards another 75 bps rate hike in September. “Trading in futures contracts tied to the Fed's policy rate suggested investors see that rate rising to a range of 3.50%-3.75% by March of next year, but then starting to fall a few months later,” said Reuters. That said, the current range of the Fed’s benchmark rates is 2.25-2.50%.

Amid the risk-off mood, Wall Street closed mixed but the S&P 500 Futures dropped 0.15% intraday at the latest. Further, the US 10-year Treasury yields reverse the previous day’s retreat from the monthly high to 2.90% by the press time.

Looking forward, USD/INR traders have little on the economic calendar to watch, which in turn highlights risk catalysts for fresh impulse.

Technical analysis

Unless providing a daily closing beyond the three-week-old ascending resistance line, around 79.88 by the press time, overbought RSI favors USD/INR sellers targeting the 50-DMA support, close to 79.15 at the latest.