USD/INR: Risk-off may weigh over Indian Rupee

• Rupee may be offered due to a risk-off tone in the global markets.
• The Indian  government’s focus on fiscal prudence may restrict losses in INR.  
• USD/INR has established 71.44 as key support in the last three days.  

The Indian Rupee (INR) may come under pressure on Wednesday, courtesy of the renewed US-China political tensions and the resulting risk-off tone in the equity markets. The downside, however, may be capped by the Indian government’s focus on fiscal prudence.

The futures on the S&P 500 fell 0.25% and the AUD/JPY pair, a risk barometer, shed 30 pips in Asia after China’s foreign ministry threatened retaliation over the decision by the US Senate to pass legislation aimed at protecting the human rights in Hong Kong.

Further, President Trump on Tuesday said that the US will raise tariffs on China if the world’s second-largest economy does not agree to a trade deal that he wants.

The downside in the INR, however, could be restricted by the Indian government’s decision to keep intact the fiscal deficit target of 3.3% of gross domestic product (GDP) for the current financial year despite the slowdown in the economy.

Also, China’s rate cut may restrict losses in the equities, helping the INR avoid big losses. China reduced the one-year loan prime rate to 4.15% from 4.20% and the five-year rate to 4.80% from 4.85%.

USD/INR closed at 71.72 on Tuesday, representing a 0.17% drop on the day. Sellers have failed to penetrate the area around 71.44 over the last three days.

Technical levels