USD/INR declines towards 79.00 as RBI seeks interest rate hike, US ISM buzz

• USD/INR is diving sharply towards 79.00 ahead of the RBI MPC meeting this week.
• A mixed performance is expected from the US ISM PMI data.
• Oil prices are declining towards $95.00 on deepening recession fears.

The USD/INR pair is declining sharply at open as investors are gearing up for a two-day monetary policy committee (MPC) by the Reserve Bank of India (RBI) this week. The asset is scaling lower towards the round-level of support of 79.00 and may remain volatile as the RBI is intended to elevate the repo rate to contain the inflation mess.

The inflation rate has reached 7% in India and households are facing severe heat. It is expected that the RBI will elevate the repo rate by 25-50 basis points (bps). RBI Governor Shaktikanta Das is committed to cooling off the inflation heat and a rate hike by 50 bps will drive the repo rate to 5.40%.

On the dollar front, the US dollar index (DXY) has rebounded after diving to near weekly lows at 105.54. The DXY is expected to face an immediate hurdle of around 105.80 and may remain sideways as investors are awaiting the release of the US Institute of Supply Management (ISM) data. An underperformance is expected from the Manufacturing PMI as the economic data is seen at 52, lower than the prior release of 53.

However, the release of the downbeat US ISM Services New Orders Index data may delight DXY investors. The US ISM New Orders Index is seen at 52, significantly higher than the prior release of 49.2. The corresponding data reflects the forward demand by the households and eventually, a higher New Orders Index indicates higher demand ahead.

On the oil front, the oil prices are declining towards 95.00 as recession risk is getting deeper and the global growth forecast is getting thinner. The black gold is expected to remain subdued on downbeat Caixin Manufacturing PMI data. The economic data has landed at 50.4, lower than the estimates of 51.5 and the prior release of 51.7.