Rupee loses intervention lift, realigns with fundamentals

Fundamental overview

US dollar:

On Friday, the US dollar surged higher following the strong US NFP report, yet those gains were short-lived as the bulk of the NFP-related moves were subsequently reversed.

The reason for this is that traders were concentrating on the CPI rather than the NFP. Market participants generally prioritise data that the central bank considers important, and at present the Fed's attention is on inflation.

Actually, one day prior to the NFP release, Fed's Waller stated that he would back maintaining rates steady at the next FOMC gathering, although a strong CPI reading could lead him to contemplate a hike.

This explains why market participants are fixated on the Friday CPI release. Barring an unexpected advance in US-Iran talks, price movement is expected to stay largely range-bound or slightly favourable for the dollar, as traders may begin to hedge ahead of the CPI.

If the CPI comes in weak or as expected, the dollar is likely to decline, given Waller's comment that he wouldn't entertain a rate hike without a hot CPI. On the other hand, a surprise increase in core monthly inflation could spark a further advance as hawkish repricing occurs.

Indian rupee:

Turning to the INR, the rupee was thoroughly disconnected from market realities over the previous week, climbing even as oil prices rose again and the dollar remained fairly steady. This could have stemmed from multiple RBI interventions, with three notable surges occurring absent any favourable driver for the rupee.

This week, the rupee's advance is unwinding because intervention-led moves seldom persist unless fundamentals shift. Oil prices continue to climb, and the US CPI risk looms ahead. Both factors are adverse for the rupee.

Over the near term, the INR will remain influenced by oil costs and the repricing of Fed rate expectations in either a hawkish or dovish direction. Consequently, the pair may stay within its broad range for an extended period, until a US-Iran deal is reached and the Strait of Hormuz reopens.

Looking at the broader perspective, the Indian rupee retains a bearish structural path versus the US dollar. Therefore, buyers on dips will keep seeking entry points near key technical levels to propel USD/INR to fresh highs.

USDINR TECHNICAL ANALYSIS – DAILY TIMEFRAME

USDINR has given back the bulk of its gains from RBI intervention and is heading toward the key downward trendline. Sellers are anticipated to defend the trendline with a clear risk above it, aiming for a decline to the 94.00 level. Conversely, buyers are looking for a breakout above the trendline to boost bullish positions targeting the next resistance at 96.10.

USDINR TECHNICAL ANALYSIS – 4 HOUR TIMEFRAME

A rising trendline on the four-hour timeframe is currently supporting bullish momentum. Should the price pull back to this trendline, buyers are likely to step in with a risk below it to sustain the push toward new highs. Sellers, meanwhile, are awaiting a breakdown to increase bearish positions targeting 94.00.

USDINR TECHNICAL ANALYSIS – 1 HOUR TIMEFRAME

A minor ascending trendline on the one-hour chart also defines the bullish bias. Buyers are expected to continue using this trendline as support with a stop below, aiming for new highs. Sellers are watching for a break to extend the decline toward the four-hour trendline.

UPCOMING CATALYSTS

The US PPI report and jobless claims are set for release tomorrow. Friday brings the US CPI report to close the week. Events involving US-Iran relations will also matter for the Indian rupee, which remains largely influenced by oil costs.