USD/INR slips back below 72.00 as markets react to US-China trade jitters

• USD/INR fails to sustain Monday’s bounce amid doubts over the US-China trade deal.
• A lack of directional clues amid a broad strength of the USD keeps the upside intact.
• Moody’s downgrade, mixed inflation numbers add uncertainty while trading.

In a reaction to the market’s recent shift in risk-tone, the USD/INR pair pullback back from two-day highs to 71.95 by the press time of Tuesday’s Asian session.

With the broad strength of the US dollar (USD) and mixed fundamentals of the Indian economy adds fuel to the pair’s rise, the quote recently surged to strongest since September 04.

While the greenback strength could be attributed to hopes of the US-China trade deal and the Federal Reserve’s (Fed) comparatively hawkish bias than the rest of the major central bankers, Moody’s downgrade to the Indian economic growth flashes initial signs of the Indian rupee (INR) weakness.

Among the additional catalysts, October month Indian inflation numbers rose beyond the government target but challenges to the economy keep prices under check. “As such, we opine that the rise in inflation pressures is not fuelled by the recent rate cuts by the central bank. This is given the fact that  monetary policy  is proven by being more effective in influencing demand behavior, rather than supply conditions. With economic growth likely to stay soft in the coming quarter amid limited fiscal policy space to-date, we continue to expect RBI to cut rates further by another 25 basis points in its December MPC meeting. Should that come to pass, this will bring the repurchase and reverse repurchase rate to 4.90% and 4.65%, respectively”, says UOB Group’s Economist B.Gan.

On the other hand, Chinese diplomats turn pessimistic over the trade deal prospects with the United States (US) while the continuation of Hong Kong protests and the US intervention keeps the risk-tone heavier. 10-year yeilds of the Indian and the US bonds stay mostly unchanged to 6.45% and 1.8% while Asian stocks follows the suit by the press time.

Amid a lack of major data from the US and also from India, pair traders will continue following trade/political headlines for fresh impulse.

Technical Analysis

Multiple highs marked since late-August, around 72.40, followed by the yearly top surrounding 72.65, holds the key to pair’s further run-up towards December 2018 high near 72.85 and then to 73.00. Alternatively, 71.55 and 71.30 can entertain sellers during further declines.