Indian Rupee Strengthens as RBI Policy Week Begins
The Indian Rupee (INR) opened slightly higher against the US Dollar (USD) as the Reserve Bank of India (RBI) prepared for its monetary policy week. The USD/INR pair dipped to around 96.25, reflecting reduced expectations of a Federal Reserve (Fed) interest rate hike in October. The CME FedWatch tool indicated an 82.3% probability of the Fed keeping rates unchanged, up from 35.8% the previous week.
This shift in sentiment followed the release of the US Nonfarm Payrolls (NFP) data for September, which showed weaker-than-expected job growth. The economy added only 29,000 jobs, well below the estimated 90,000 and the revised previous reading of 133,000. The unemployment rate rose to 4.2%, and average hourly earnings grew by 3% year-on-year, slower than anticipated. These figures tempered expectations of aggressive Fed rate hikes, boosting riskier assets like the Indian Rupee.
Despite this, US Treasury Yields and the US Dollar remained strong due to persistent inflation concerns and fiscal risks in France. The 10-year US Treasury Yield hovered around 5.27%, near its two-decade high of 5.34%. The US Dollar Index (DXY) reached a fresh yearly high of 102.53 in Asian trade, which could pose challenges for the Indian Rupee in the short term.
The focus this week will be on the RBI’s monetary policy announcement on Wednesday. Analysts at MUFG/BTMU expect the RBI to keep rates on hold but hint at a potential shift in stance to signal a tightening bias. They forecast 50 basis points of rate hikes, with a risk of 75 basis points, citing strong growth, abundant liquidity, and inflation risks in India. Markets may already be pricing in a more aggressive tightening path.
Technically, the USD/INR pair is trading at 96.25, maintaining a bullish near-term bias above the 50-period exponential moving average (EMA) at 95.59. The Relative Strength Index (14) is approaching overbought territory, suggesting strong but potentially stretched upside momentum. Initial support is seen at the 50-day EMA, while the pair aims to revisit the all-time high near 97.00.