Rupee's RBI-backed rally defies oil and dollar; US CPI and Iran loom

Fundamental Overview

USD:

Friday brought a sharp upward spike for the US dollar following a US non-farm payrolls release showing August job creation at nearly three times the 56K forecast. Those gains quickly gave way, however, as much of the move attributed to the NFP data was reversed.

The reason was that attention had shifted from the payrolls numbers to the CPI. Markets concentrate on the figures the Fed watches most closely, and for now the Federal Reserve's priority is inflation.

A day before the payrolls report, in fact, Fed's Waller indicated his support for no change in rates at the upcoming FOMC meeting, while noting that a hot CPI could nudge him toward a hike.

The focus for the week is firmly on the US CPI report. Barring an unexpected development in US-Iran relations, dollar price action is expected to stay mostly rangebound or modestly firmer as traders position ahead of the release.

INR:

The rupee, for its part, has moved in a way that seems divorced from reality over the last week, rising even as oil prices climbed again and the dollar stayed fairly steady. The likely driver was a string of RBI interventions, with three sharp upward moves arriving in the absence of any positive news for the currency.

Reuters reported that bankers described the central bank as increasingly active ahead of the official market open, with further intervention coming through the trading sessions. Earlier on, the RBI had mainly acted to stem rupee weakness, but recently it seems to be deploying intervention to drive the currency stronger.

As a result, dip-buyers in USD/INR are likely to emerge soon, since gains driven by intervention tend to fade absent any shift in fundamentals. A negative US CPI print on Friday, however, could weigh on the dollar across the board.

Near term, the rupee will remain at the mercy of oil costs and shifts in Fed rate expectations between hawkish and dovish readings. Consequently, USD/INR may stay within its broad range for a while until the US and Iran reach an agreement and the Strait of Hormuz reopens.

On a broader view, the rupee remains in a bearish structural downtrend versus the dollar, so dip-buyers will keep seeking entry points at key technical levels in order to drive USD/INR to fresh records.

USDINR Technical Analysis – Daily Timeframe

USDINR has fallen all the way back to its June lows amid repeated RBI intervention. Should it push lower once more, buyers are likely to appear near the key 94.00 handle, placing a defined stop below it in anticipation of a move toward new record peaks. Sellers, meanwhile, want to see a break to the downside to add to bearish positions targeting 92.65 next.

USDINR Technical Analysis – 4-Hour Timeframe

The pair is now pushing above the descending trendline that had been dictating the bearish momentum. Buyers may step in around current levels with a stop below the recent low, eyeing a rebound toward the main downward trendline. Sellers, for their part, will be watching for a drop back below the line to carry the decline toward 94.00.

USDINR Technical Analysis – 1-Hour Timeframe

On the one-hour view, little else stands out apart from a minor resistance zone near 94.80, where sellers are expected to act with a stop above the level in order to continue pressing toward fresh lows. Buyers, meanwhile, will be looking for a breakout to build bullish positions targeting the main descending trendline around 95.40.

Upcoming Catalysts

Thursday brings the US producer price index and weekly jobless claims numbers. Friday rounds out the week with the US CPI release.