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USDINR Remains in Downtrend, Signals Choppiness

The US dollar remained relatively unchanged against the Indian rupee on Monday, with the USDINR trading at 83.26. The US dollar faces off against a rupee that has recently been strengthened by the Reserve Bank of India’s (RBI) decision to retain interest rates at 6.50%.  Meanwhile, the greenback fights back, strengthened by strong US macroeconomic data.

The US economy reported a rise in Nonfarm Payrolls to 303k in March from February’s 270k, exceeding the forecast 212k. This contributed to the decline in the unemployment rate from 3.9% to 3.8% over the same period, again performing better than the forecast figure. This has increased the likelihood that the Federal Reserve will be slow to cut the current 5.25-5.50% interest rate as US inflation figures remain stubbornly above the 2% target mark.

Meanwhile, yields on the 10-year and 5-year US Treasury bonds have strengthened above 4.425% as of this writing, and this will provide some tailwinds to the dollar. Despite this, however, the RBI’s interventions are likely to put a lid on the dollar’s rise in the coming weeks. The central bank has been engaged in the FX market to keep USDINR volatility in check.

Also, crude oil prices declined by about 1% early on Monday, easing the pressure on the rupee. India is the world’s third-largest importer of dollar-denominated crude oil, and lower prices typically strengthen the rupee.  That said, India has been exporting a significant portion of its oil from Russia despite the Western sanctions. The country’s Russian oil imports rose by 7% in March, with the savings resulting in reduced dollar demand. In the absence of high-impact data from the US and India on Monday, we are likely to see the pair trade within narrow margins.

Technical analysis

The buyers in the USDINR market need to keep the price above 83.29 to remain in control. That will favour them to break the resistance at 83.35, beyond which they are likely to test 83.40. Alternatively, a move below 83.29 will favour control by the sellers, with support at 83.23. A move below that mark will invalidate the upside narrative and possibly build momentum to establish another support at 83.20.