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Surprise ease in inflation to support rupee bond - HDFC Securities 

Indian rupee expected to open higher following slower inflation and weaker dollar index along with risk-on sentiments. India’s headline rate of inflation eased in August as food prices cooled, boosting the case for the central bank to keep interest rates lower for longer to support economic growth. Consumer prices rose 5.3% last month from a year earlier, that was the slowest rate since April’s 4.2%, while estimated at 5.6%. India 10-year yields up 1bp to 6.19% while 5-year yield rises 2bps to 5.63%.

Rupee started a week on backfoot ahead of key economic data. On Monday rupee declined in line with the nation’s stocks as risk-off sentiment and higher dollar against Asian currencies. Spot USDINR gained 0.3% to 73.6788 after rising 0.7% last week, the biggest gain since the week ended July 2. Technically speaking, the pair is expected to stay bullish till it holds 73.40 while on higher side 73.85 remains resistance and 73.25 support.

Asian stocks look set for a steady open after the U.S. snapped a five-day drop ahead of inflation data that could impact expectations of the likely timeline for a reduction in Federal Reserve stimulus.

Crude has rallied again in recent weeks as extreme weather in the U.S. blunts supply, and as demand recovers from the Covid-19 pandemic.

NY Fed survey showed US consumer inflation expectations soared, setting up an interesting backdrop before Tuesday’s CPI data. The importance of CPI has been diluted now that the Fed has made clear that its inflation mandate has been met, and it’s up to the labor market to determine its policy.

USDINR

USDINR September futures formed inside bar on Monday. It has been struggling to sustain above 73.70 level, the 50% Fibonacci retracement level adjoining high of 74.96 and low 73.32.

The pair is having falling trend line resistance around 74.10 and 74.50 (as shown in side chart).

It has been facing stiff resistance around long term moving average of 200 DMA.

Momentum oscillators and indicators turned neutral after last week’s bounce indicating consolidation in the pair

USDINR September futures expected to open lower and level below 73.40 will reclaim 72.92

Medium term trend for the pair remains bearish until it trads below 74.10 level.

USDINR September Daily Chart

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