Indian Rupee falls as upbeat US Dollar outweighs lower oil prices

• The Indian Rupee weakens against the US Dollar on Thursday.
• A stronger US Dollar due to a sticky US PCE Inflation report has offset lower oil prices.
• Investors keenly await Fed Chair Warsh’s remarks at the Jackson Hole Symposium.

The Indian Rupee (INR) trades lower against the US Dollar (USD) on Thursday after a holiday the previous day. The USD/INR pair rebounds to near 95.50 from its 10-day low of 95.40 posted on Tuesday. The pair was expected to open positive due to lower oil prices; however, the recovery move in the US Dollar on Wednesday on the back of a sticky United States (US) Personal Consumption Expenditure (PCE) Price Index report for July has outweighed that.

At press time, the US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, holds onto Wednesday’s gains near 99.15.

US PCE inflation accelerates at faster-than-expected pace in July

On Wednesday, the US Bureau of Economic Analysis (BEA) reported that the core PCE inflation, which is closely tracked by Federal Reserve (Fed) officials, arrived in line with estimates and the prior release of 3.3% Year-on-Year (YoY). The headline PCE Price Index also grew at a steady pace of 3.7% YoY, while it was expected to cool down to 3.6%.

Signs of price pressures remaining sticky are expected to keep fears of Federal Reserve (Fed) interest rate hikes this year intact.

However, there has been no change observed in the Fed’s interest rate expectations for the September meeting after the inflation data release as of now.

According to the CME FedWatch tool, the odds of the Fed leaving interest rates unchanged in the September policy meeting are almost steady at 64%.

Jackson Hole Symposium awaited

The next major trigger for global financial markets could be remarks from Fed Chairman Kevin Warsh at the Jackson Hole Symposium.

Strategists at DBS flag Fed Chairman Kevin Warsh’s Jackson Hole keynote on Friday, August 28, as “the most important event this week,” but stress that the symposium is being “viewed more as a credibility event rather than a rate-signalling one.”

In their view, “Warsh faces a difficult balancing act: defending the Fed’s independence and price-stability mandate while providing greater clarity on the Fed’s reaction function without abandoning his preference for less forward guidance.”

Iran and Oman reach Hormuz deal

The confirmation from the Islamic Revolutionary Guard Corps (IRGC) that it has reached a revenue-sharing agreement with Oman on the Strait of Hormuz, a critical chokepoint for almost one-fifth of global energy supply, has weighed on oil prices.

However, the IRGC clarified that the reopening of the Strait of Hormuz will take more than just a deal with Oman.

In the opening session, the MCX Crude Oil contract expiring on September 21 is 1.5% lower at around Rs. 7,775.

Lower oil prices bode well for currencies from economies such as India, which rely heavily on oil imports to meet their energy needs.

USD/INR Technical Analysis

In the daily chart, USD/INR trades at 95.50. The price action near the 20-period exponential moving average (EMA) at 95.5543 and the triangle formation reflect a sharp volatility contraction, which indicates a sideways trend.

The Relative Strength Index (14) inside the 40.00-60.00 zone also signifies indecisiveness among investors.

On the topside, initial resistance is seen at the 20-period EMA at 95.55, followed higher by the downward trendline break level near 96.5178. On the downside, immediate support aligns with the rising trendline break price at 95.40, with a deeper floor emerging at the trendline start point around 94.16, where buyers would be expected to defend the broader uptrend.

(The technical analysis of this story was written with the help of an AI tool. Know more.)