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Dollar Declined as Powell Struck a Dovish Tone 

• Indian rupee is likely to open higher following overnight weakness in the dollar index and surge in risk assets after the Fed hiked by 75 bps, as expected, with a statement that caused barely a ripple in asset markets as it landed. The lower yields pulled the dollar sharply downward. Futures and OIS are still pricing roughly 60 bps at the September meeting, or a ~40% chance of 75 bps.

• The forward markets indicate USDINR could open 12-14 paise lower from yesterday’s close. On Wednesday, spot USDINR closed 12 paise higher to 79.90 amid higher crude oil prices and dollar demand from oil importers for month-end commitment. The technical set-up for USDINR remains bullish as long as it floats above 79. In the short term, we expect a pullback in USDINR with downside support at 79.70 and 79.30 while 80.10 remains resistance for the time being.

• Highlights of FOMC:

• The Fed unanimously raises its benchmark rate by 75 basis points to a range of 2.25%-2.5%, in line with expectations, and anticipates that further increases in the target rate “will be appropriate.” The FOMC repeats that it’s “highly attentive to inflation risks.”

• The Fed’s balance-sheet reduction process is proceeding as planned with caps on Treasury roll-off doubling to $60 billion a month in September and to $35 billion for MBS.

• The Fed plans to step away from forward guidance and will take decisions on a meeting-by-meeting basis depending on the data, Powell said. The Fed chair said another “unusually large” hike was still possible if policymakers thought that the data justified it.

• Given the Fed’s apparent willingness to at least consider pivoting toward a softer approach, data outcomes will be key and investors will be hoping Thursday’s GDP echoes the Fed by coming in as expected.

USDINR

• USDINR August futures consolidated in a narrow range of 80 to 80.15 after an initial higher opening.

• The pair has been trading well above the short-term moving averages. It has been trading with a bearish sequence of lower top lower bottom on an hourly chart.

• On the daily chart, Relative Strength Index of 14 days given negative cross over and exited from oversold zone while on an hourly chart it’s headed north indicating short covering bounce.

• MACD on an hourly chart is placed below the zero line while the histogram bar remains positive indicating a short covering.

• USDINR August futures may open lower and head towards 79.90 while on the higher side 80.40 remains strong resistance.

USDINR August Daily Chart

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