Indian Rupee drops back to 76.40 on firmer Oil, mixed mood ahead of Fed

  • USD/INR starts a two-day downtrend to rebound from the weekly low.
  • Oil prices are recovering from a two-week low on the retreat of the USD and the risk mood in Asia-Pacific.
  • Ukraine-Russia struggles, pre-Fed anxiety weigh on yields, US stock futures.
  • The Fed’s 0.25% rate hike is priced in, focuses on Powell’s speech and economic projections.

USD/INR extends its rebound from the weekly low, up 0.11% intraday around 76.35-40 in Wednesday’s mid-Asian session. In doing so, the Indian Rupee (INR) pair rises for the first time in threes while following oil prices.

That said, WTI Crude Oil prices are showing a two-day downtrend while consolidating recent losses around a two-week low, up 2.0% near $95.75 at the latest. The energy bulls appear to have encouraged the decline in daily covid infections in China and the pullback in the US dollar to print the latest gains.

That said, stocks in China and Hong Kong lead the Asia-Pacific bulls as Beijing signals a drop in daily covid figures. “China reports 1,952 new coronavirus cases on March 15, up from 3,602 a day earlier,” Reuters said.

Given India’s heavy reliance on oil imports and growing trade deficit, a rise in oil prices weighs on the INR and vice versa. It should be noted that the latest outflow of foreign funds also favors USD/INR buyers. Furthermore, a slight increase in India’s daily increase in coronavirus infections to 2,876 from 2,568 also propels the Indian rupee pair.

Elsewhere, mixed comments from the Russian and Ukrainian presidents on the progress of the peace talks and the likelihood of positive outcomes appear to be challenging U.S. stock futures lately. The easy performance of US Treasury yields also illustrates market anxiety.

Amid these games, S&P 500 futures fell 0.18% to 4,257 while 10-year US Treasury yields are trending seven days higher around the highest levels since June 2019, in down 1.8 basis points (bps) to 2.145% at the latest.

It should be noted that the US Producer Price Index (PPI) matched expectations for 10% annual growth, while the NY Empire State Manufacturing Index recorded the biggest decline since May 2020.

Next, US retail sales for February, which are expected to decline to 0.4% from 3.8% previously, will join risk catalysts and oil moves to lead USD/INR traders ahead of the Fed.

Read: Overview of the Fed’s interest rate decision: is history any guide?

Technical analysis

Despite the latest rally, the 10-DMA and the week-old descending trend line around 76.50 and 76.58 respectively are challenging USD/INR bulls before giving them control.

Richard L. Militello