Will Strong Dollar & Crude oil gains, support USDINR pair?

The USDINR pair attempted third consecutive weekly gains last week. The pair rose towards one week high 83.1850 as continued strength in the US dollar which hit six months high recently and sparking Crude oil prices supporting buying activities.

The dollar strengthened by 0.26% against its major counterparts last week. The currency hit a six-month peak of 105.4350 as investors positioned for more signals from the Fed.

In the past week, significant economic data from the US has consistently highlighted robust economic conditions. These strong economic indicators provide additional support for the Fed’s intention to potentially implement another interest rate hike by the conclusion of 2023.

Concerns over a U.S. government shutdown, amid disagreements over defence spending between major Republican lawmakers, also kept sentiment.

Crude oil prices posted 3.76%, third consecutive weekly gains. Prices sparked their highest levels since November 2022 and are on track for their biggest quarterly increase since Russia’s invasion of Ukraine in the first quarter of 2022.

The Saudi and Russian output cuts could push the market into a 2 million barrels per day (bpd) deficit in the fourth quarter, and a subsequent drawdown in inventories could leave the market exposed to further price spikes in 2024, ANZ analysts said in a note.

Saudi Arabia and Russia extended supply cuts to the end of the year as part of the OPEC+ group’s plans, and as Chinese refineries ramped up output, driven by strong export margins.

From the domestic front, the report indicates that the trade deficit in India expanded to its highest level in 10 months, reaching $24.2 billion in August. This represents an increase from the trade deficit of $20.7 billion recorded in the previous month.

Additionally, the easing inflation in August is also putting pressure on the INR, which came in at 6.83%, compared to 7.44% in the previous month. Additionally, the Core inflation rate stood at 4.9%, aligning with market expectations.

Reserve Bank of India (RBI) Governor Shaktikanta Das has stated that the central bank anticipates inflation to ease starting from September onward. This suggests that the RBI expects a gradual decline in inflationary pressures, which can have implications for its monetary policy decisions.

Now, focus will shift on Fed’s interest rate decisions scheduled for Wednesday. The Fed is expected to maintain its current interest rates without changes. Furthermore, future direction of interest rates may have a strong impact on the pair.

Technical Outlook

 On 13 September 2023, the USDINR pair enjoyed a recovery rally. Pair rebounded from the low 82.8240 and recently made a high 83.1850. Today, it traded at 83.1450, up 0.09%.

On the above chart, the pair is trading on a verge of massive resistance 83.2500 coincided with two weeks high. A break above will lead to bullish momentum towards 83.4550-83.8550-84.1525 very soon.

Adding to this, the pair is continuing holding above its long-term consolidation resistance 82.6550 which is also pointing for upside momentum.

On the downside, crucial support is seen at 82.5525 only below it, the pair could retreat towards 82.30-81.8525.

Hence, it is expected that, USDINR pair will remain in the bullish zone and could gain 1.5%-2.5% in the near future.