USD/INR oscillates in a range around mid-83.00s, just above Monday's one-month low

• Indian Rupee seesaws between tepid gains/minor losses through the Asian session.
• Dovish Fed expectations keep the USD bulls on the defensive and lend some support.
• Fedspeaks and the US PCE Price Index awaited before placing fresh directional bets.

The Indian Rupee (INR) struggles for a firm intraday direction and consolidates in a narrow band just above its highest level in over a month touched against its American counterpart the previous day. The markets are now pricing in the possibility of another supersized 50 basis points interest rate cut by the Federal Reserve (Fed) in November after the start of the policy-easing cycle last week. This caps the recent US Dollar (USD) bounce from the YTD low and benefits the local currency. 

The INR bulls, however, seem reluctant and prefer to wait for more cues about the Fed's rate-cut path before placing fresh bets. Hence, the focus will remain glued to speeches by influential FOMC members this week. Apart from this, the release of the US Personal Consumption Expenditures (PCE) Price Index on Friday will play a key role in driving the USD demand in the near term and help in determining the next leg of a directional move for the USD/INR pair. 

Daily Digest Market Movers: Indian Rupee bulls turn cautious ahead of  Fedspeaks and the US PCE Price Index

• The flash HSBC India Manufacturing Purchasing Managers Index (PMI) eased to 56.7 in September from the previous reading of 57.5. The Services PMI declined to 58.9 versus 60.9 prior. 
• "The flash Composite PMI in India rose at a slightly slower pace in September, marking the slowest growth observed in 2024," noted Pranjul Bhandari, chief India economist at HSBC.
• Chicago Fed President Austan Goolsbee noted, “Many more rate cuts are likely needed over the next year, rates need to come down significantly.”
• Atlanta Fed President Raphael Bostic stated that cutting the cycle with a large move will help bring interest rates closer to neutral levels as the risks between inflation and employment become more balanced.
• Minneapolis Fed President Neel Kashkari said that he expects to lower interest rates by quarter-point moves at each of the central bank’s two remaining meetings this year, per Bloomberg. 
• The flash reading of the US Manufacturing PMI dropped to a 15-month low of 47.0 in September from 47.9 in August, weaker than the estimations of 48.5. Meanwhile, the Services PMI eased to 55.4 in August versus 55.7 prior, above the market consensus of 55.2.

Technical Analysis: USD/INR remains below 100-day SMA pivotal support breakpoint, now turned resistance

The Indian Rupee trades flat on the day. The USD/INR pair keeps the bearish vibe on the daily timeframe as it holds below the key 100-day Exponential Moving Average (EMA). The path of least resistance level is to the downside as the 14-day Relative Strength Index (RSI) stands in the bearish zone near 33.70. 

The initial support level for the pair is located at 83.30, the low of June 19. The additional downside filter to watch is the 83.00 round mark. 

On the flip side, the first upside barrier for USD/INR emerges near the 100-day EMA at 83.68. Any follow-through buying above this level could see a rally to the key resistance level at the 84.00 psychological mark. 

Fed FAQs

What does the Federal Reserve do, how does it impact the US Dollar?

Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.

How often does the Fed hold monetary policy meetings?

The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions. The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.

What is Quantitative Easing (QE) and how does it impact USD?

In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.

What is Quantitative Tightening (QT) and how does it impact the US Dollar?

Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.

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