Rupee Gains Ground as Fed Rate Hike Expectations Ease
The Indian Rupee opened stronger against the US Dollar on Monday, with the USD/INR pair dipping to around 96.29. This move came after a holiday-shortened trading session, as markets in India were closed on Friday for Mahatma Gandhi Jayanti. The shift in the Rupee's value was influenced by traders scaling back expectations of imminent interest rate hikes by the Federal Reserve.
The probability of the Fed leaving rates unchanged in October surged to 82.3%, up from 35.8% a week earlier, according to Fed funds futures. This change followed the release of the September US Nonfarm Payrolls report, which showed weaker-than-expected job creation and wage growth. The economy added only 29,000 jobs, missing the consensus forecast of 90,000, while the unemployment rate ticked up to 4.2%. Average Hourly Earnings also cooled to 3% year-on-year, down from 3.1% in August.
Despite the softer labor data, the US Dollar and Treasury yields have remained elevated, supported by higher inflation projections and concerns about French fiscal dynamics. The 10-year US Treasury yield was trading near 5.27%, close to the two-decade high of 5.34% reached last week. The US Dollar Index touched a new yearly high near 102.53, which may continue to pressure the Rupee in the near term.
This week, the Reserve Bank of India's (RBI) upcoming policy decision is a key focus for the Rupee. Analysts at MUFG/BTMU predict that the RBI may keep rates on hold but signal a tightening bias, with potential rate hikes starting in December. They forecast up to 75 basis points of hikes over the current cycle, citing strong growth, abundant liquidity, and rising inflation risks in India.
Technically, the USD/INR pair is trading around 96.29, maintaining a bullish bias as it remains above the 20-day exponential moving average at 95.86. The pair is consolidating near recent highs, with the 14-day Relative Strength Index at 65.30, indicating potential overbought conditions. Initial support is seen at the 20-day EMA, while the pair targets a retest of the all-time high near 97.00.