USD/INR climbs above 76.60 on upbeat DXY and foreign fund outflows

• USD/INR has scaled above monthly highs at 76.59 despite falling oil prices.
• Solid DXY amid progressive bets over an aggressive Fed rate hike has pushed the asset higher.
• An intense sell-off in the Indian equities has resulted in the outflow of foreign funds.

The USD/INR pair is advancing higher as the US dollar index (DXY) strengthens on a downbeat market mood and foreign fund outflows. The asset has overstepped its monthly highs of 76.59 despite falling oil prices.

Risk-off impulse due to uncertainty over the interest rate decision by the Federal Reserve (Fed) in May has improved the appeal of safe-haven assets. The DXY has comfortably established above the round level resistance of 101.00 and is aiming higher as investors are betting over an ultra-tight monetary policy by the Fed along with hawkish guidance for the rest of the year. Meanwhile, the impact of the global sell-off in equities has also been advanced to the Indian equities. A sheer downside in the Indian indices has resulted in the outflow of foreign funds, which has also dampened the demand for the Indian rupee.

Meanwhile, oil prices have taken a hit after the fears of a slump in the aggregate demand renewed. A significant cut in the global growth forecasts by the International Monetary Fund (IMF) has raised concerns over the demand for oil in the global market. Also, the lockdown measures in China to contain the spread of Covid-19 have dented the oil demand. It is worth noting that China is a leading importer of oil. Therefore, a slippage in the demand for oil by the world’s biggest importer will have multiplier effects on the asset. However, the Indian rupee has failed to get benefitted from the oil prices despite having a higher dependency on the oil imports.

Going forward, investors will focus on the release of the US Durable Goods Orders, which will release on Tuesday. A preliminary estimate for the monthly Durable Goods Orders is 1% against the prior print of -2.1%.