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  • USD/INR snaps two-day winning streak while refreshing intraday low.
  • Broad US dollar weakness, recently positive fundamentals from India favor bulls.
  • RBI is expected to stand pat but growth and inflation projections will be eyed closely.

USD/INR drops to 73.80, down 0.10% intraday, ahead of the Reserve Bank of India’s (RBI) interest rate decision on Friday. In doing so, the pair drops for the first time in the last three days amid hopes of no change in the RBI’s current monetary policy, as well as an upward revision to the growth and inflation projections for the current fiscal year.

While the recovery in the Q2 GDP and price measures suggest upward revision of the key economic forecasts, chatters concerning the Indian central bank’s liquidity policy also weigh on the pair. A sharp drop in the Indian Treasury Bill yields versus the benchmark 10-year Government Securities marked a steeped yield curve, which in turn suggests further liquidity measures. Though market players are divided over the same and hence the bulls are having an upper hand.

Ahead of the RBI rate decision, up for publishing at 06:15 GMT, Deutsche Bank said, “Upside surprises to recent high-frequency data and progress on the vaccine front should keep RBI on the sidelines, while slowly shifting its attention to inflation management.”

On the same line, TD Securities said, “We only expect easing once there is evidence that inflation is softening, with a cut likely in February 2021.”

Other than the RBI chatters, broad US dollar weakness and the risk-on mood pleases the USD/INR bears. The US dollar index (DXY) dropped to 90.51, the fresh low since April 2018 the previous day, currently around 90.68.

Risk barometers like S&P 500 Futures and Asia-Pacific shares remain mildly positive but the US 10-year Treasury yields dwindle amid vaccine hopes and the US-China tussle.

Looking forward, RBI becomes the key event for the pair before the US employment report for November. Although the RBI’s status-quo may fail to provide any clear direction to the USD/INR pair traders, the Indian central bank’s take on the growth and inflation figures will be the key to watch. Any upbeat analysis, which is most likely, can exert additional downside pressure on the quote.

Read: Nonfarm Payrolls Preview: Another dollar’s disappointment underway

Technical analysis

A confluence of 10-day and 50-day SMA near 73.85/90 restricts the pair’s short-term upside ahead of a falling trend line from November 13, at 74.00 now. As a result, odds of the pair’s drop to the monthly low near 73.40 can’t be ruled out.