Rupee recovers on suspected RBI intervention; dollar, oil stay headwinds

FUNDAMENTAL OVERVIEW

USD:

After Fed Chair Warsh gave a hawkish speech at the Jackson Hole Symposium, the US dollar rose broadly on Friday.

The crucial line in his speech was the statement: "I would be hard pressed to describe broad financial conditions as restrictive." The market read that as Warsh pushing back against the recent loosening of financial conditions, prompting a retightening.

This development has prolonged the pullback in so-called debasement trades, and the US dollar has reverted to levels seen before the Treasury announcement. Additionally, the market now prices in a 60% likelihood of a rate hike at the September meeting, up from previous estimates.

Warsh stressed again that the Fed's focus is entirely on inflation, noting that progress has been sluggish. In my view, only a weak US CPI reading could push the odds below 50% and prevent the Fed from raising rates at the next meeting.

Should the probabilities remain at 50% or higher, the Fed may be compelled to hike anyway, as not doing so would signal a dovish stance.

INR:

On Friday, the rupee weakened after Warsh’s hawkish Jackson Hole speech. However, on Monday it staged a swift recovery even as oil prices climbed. The rebound likely came from RBI intervention, as there have been no positive drivers for the currency.

As a result, dip-buyers in USD/INR are expected to emerge shortly, since intervention-driven gains tend to fade unless fundamentals shift.

In the near term, oil prices will remain the main driver for the rupee, meaning the currency may stay rangebound until a US-Iran deal is reached and the Strait of Hormuz reopens.

On a broader view, the rupee is in a long-term bearish trend versus the greenback. Therefore, dip-buyers will keep seeking entries near robust technical levels to drive USD/INR to fresh highs.

USDINR TECHNICAL ANALYSIS – DAILY TIMEFRAME

USDINR is trading between the key support at 95.10 and resistance at 96.10. Traders are expected to continue playing the range, buying near support and selling near resistance, until a breakout occurs in either direction.

USDINR TECHNICAL ANALYSIS – 4 HOUR TIMEFRAME

The pullback has brought prices to the minor support zone near 95.60. Buyers are likely to enter here with risk defined below support, aiming to push toward resistance. Sellers, meanwhile, will watch for a breakdown to add to short positions, targeting a drop to 95.10.

USDINR TECHNICAL ANALYSIS – 1 HOUR TIMEFRAME

On the hourly timeframe, a minor uptrend line adds confluence to the support near 95.60. Buyers are expected to step in here, aiming for a rally to 96.10 resistance, while sellers anticipate a break lower to extend the decline to 95.10.

UPCOMING CATALYSTS

On Tuesday, the US ISM Manufacturing PMI and job openings data are due. Wednesday will bring the ADP employment report. Thursday features Fed’s Waller, jobless claims, and the ISM Services PMI. The week ends on Friday with the nonfarm payrolls report.