Rupee pares gains as oil rally outweighs RBI's repeated interventions

USD:

A hold on rates is the broad expectation for the Federal Reserve, and since no fresh projections or dot plot are due at this meeting, any change in wording from Chair Warsh or the statement will draw the most attention.

September's higher inflation data has made the case for additional tightening stronger, yet top Fed officials have shown little urgency for a second straight hike in October. The default view remains a hawkish hold, with the debate over how soon and how much to tighten rather than whether to tighten at all.

Warsh is expected to repeat that policy is not tight enough and that further tightening is needed. He is also seen insisting on the commitment to price stability while urging caution against reacting excessively to any single data point.

Traders have already priced in an 80% probability of a rate hike in December, which puts the emphasis on the 2027 outlook. Traders anticipate about two additional hikes next year, with the first one completely priced in for April.

A surprise rate increase would set off strong risk-off flows. The US dollar and Treasury yields might rise in the initial reaction, but I expect that move to fade quickly as worries about growth mount while stocks fall.

A broadly neutral decision that does not hint at an imminent hike could be interpreted as dovish and prompt a dollar correction. If the Fed simply matches the expected hawkish hold without major surprises, I would look for the same response on a smaller scale.

INR:

The rupee has recently started to unwind the gains it got from central bank intervention, while oil prices have advanced to fresh highs. Though the RBI has intervened repeatedly, crude remains the dominant factor.

India's heavy reliance on imported crude means that when oil rises, local importers must buy more dollars to settle energy bills, boosting USD demand and hurting the trade balance and current-account position.

Looking at the wider picture, the rupee is on a structurally bearish path against the dollar, so dip-buyers should keep seeking entries around strong major technical levels and continue to push the USD/INR pair to record highs.

USDINR technical analysis on the daily timeframe

USDINR bounced from the major support area near 95.10, with buyers stepping in to aim for a rally toward the 96.10 resistance. Should another pullback arrive at support, those buyers are likely to act again, using a clearly defined risk below the zone as they continue to target the resistance. Sellers, meanwhile, want a downside break that would lead to the 94.00 level next.

USDINR technical analysis on the 4-hour timeframe

Recent action on the 4-hour timeframe may have produced an inverse head and shoulders pattern near the support zone. Sellers are likely to keep testing the neckline, with risk defined above it, as they aim to drive the pair to fresh lows. Buyers, in contrast, want a break higher so they can enter and push for the next rally to 96.10 resistance.

USDINR technical analysis on the 1-hour timeframe

On the 1-hour timeframe, there is little more to add, since consolidation close to support could cause frequent fakeouts and choppy trading. The levels to keep an eye on are the neckline and support at 95.10.

Catalysts coming up

The FOMC rate decision is scheduled for today. Tomorrow brings the US GDP report, US PCE data and the latest US Jobless Claims figures. Friday rounds out the week with the US Employment Cost Index.