Indian Rupee drops on oil price bounce, US NFP in focus

• The Indian Rupee trades slightly lower at around 95.27 against the US Dollar as the US NFP takes center stage.
• Weak US ADP Employment Change data has set a negative tone for the US NFP.
• Oil prices bounce back amid fears of escalation in internal Middle East war.

The Indian Rupee (INR) falls slightly against the US Dollar (USD) on Friday in the countdown to the United States (US) Nonfarm Payrolls (NFP) data for July at 06:00 PM IST or 12:30 GMT. The USD/INR pair rises to near 95.27, with investors awaiting the US NFP to get cues regarding the current status of the labor market.

Ahead of the US NFP, weak ADP Employment Change data for July has established a cautious backdrop for the official employment data.

ADP slowdown reinforces expectations for softer US payrolls

According to TD Securities, July ADP employment data “surprised to the downside, moderating to 44k (TD: 50k, cons: 65k).” While the bank stresses that it does “not put much weight on ADP when it comes to m/m moves in NFP,” it notes that “the trend in the data is in line with what we are expecting.” TD highlights that “both the monthly and weekly ADP data have moderated this summer after a strong start to the year,” and suggests that “a similar trend is likely to occur with NFP job gains.”

According to NFP estimates, the US economy created 80K fresh jobs, higher than 57K in June. The Unemployment Rate is seen as steady at 4.2%. Average Hourly Earnings, a key measure of wage growth, is expected to have grown at a steady pace of 0.3% and 3.5% on a monthly and yearly basis, respectively.

The wage growth measure, which provides cues about the inflation outlook, could prove to be a major driver for the US Dollar’s next move, compared to the job data, as policymakers signaled in July’s Fed monetary policy statement that they are increasingly concerned about inflation remaining well above the 2% target. Also, Chairman Kevin Warsh said that the central bank “won’t hesitate to act” if needed to tame elevated price pressures.

Currently, the CME FedWatch tool shows a 54.5% chance that the Fed will raise interest rates in the September policy meeting.

Oil prices recover on internal Middle East conflicts risk

Oil prices have regained ground after a significant plunge in the last two weeks. Rising friction between Iran-aligned Houthis and Saudi Arabia has increased risks of internal war in the Middle East at a time when Iran and the US have just reached a temporary ceasefire, and has promoted fears of a prolonged energy supply disruption.

According to a report from The Guardian, Saudi Arabia is stepping up its attacks on Houthis in retaliation for striking Yemeni government troops and Najran province.

At press time, the MCX Crude Oil contract expiring on August 19 trades 1.13% higher at around Rs. 7,460.

Currencies from economies, such as India, which rely heavily on oil imports to meet their energy needs, tend to underperform in a high-oil-price environment.

Technical Analysis: USD/INR stays below 20-day EMA

USD/INR trades at around 95.27, retaining a mildly bearish near-term bias as spot holds below the 20-day exponential moving average (EMA) at 95.57.

The pair’s failure to reclaim this dynamic resistance hints at continued downside risk, while the Relative Strength Index (RSI) at 44.6 sits in neutral territory, suggesting selling pressure is present but not yet stretched into oversold conditions.

On the topside, the 20-day EMA at 95.57 is the first barrier that bulls would need to clear to ease the current downward tone and open the way for a more sustained recovery. Looking down, the Wednesday low at 94.83 is the key support level, followed by the June low at 94.15.

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