USD/INR Price News: Rupee drops below 79.50 on aggressive Fed policy woes, US/India inflation eyed

• USD/INR takes the bids to print four-day uptrend, renews daily high of late.
• Fed rate futures signal 73% chances of 0.75% rate hike in September after upbeat US jobs report for May.
• Recovery in oil prices test pair sellers cheering hawkish RBI moves.
• US CPI on Wednesday, India CPI on Friday will be crucial for short-term directions.

USD/INR prints a four-day uptrend around 79.48 as the US dollar cheers hawkish Fed bets during early Monday morning in Europe. Also underpinning the Indian rupee (INR) pair’s run-up is the recently firmer oil prices and the market’s fears that the Reserve Bank of India’s (RBI) rate hike appears less impactful.

WTI crude oil prices extend the previous day’s rebound from a six-month low towards $89.00 heading into Monday’s European session. The black gold’s latest rebound could be linked to the firmer China trade numbers.

China’s trade numbers for June marked upbeat results with the Exports rising the most in the year. That said, the headline Trade Balance rose to $101.26B versus $90B forecasts and $97.94B. Further details suggest that Exports increased by 18% compared to 15% expected and 17.9% prior whereas the Imports eased to 2.3% compared to 3.7% expected and 1.0% prior.

Elsewhere, the interest rate futures hint at the 73% chance of the Fed’s 75 basis points (bps) rate hike in September. The odds of the Fed’s aggression jumped after the strong US jobs report for July. That said, the headline Nonfarm Payrolls (NFP) rose to 528K versus 250K expected and 398K upwardly revised prior. Further, the Unemployment Rate also inched lower to 3.5% compared to 3.6% expected and previous readings.  

Following the data, San Francisco Fed President Mary Daly said during the weekend that the Fed is far from done in combating inflation. The policymaker also added, “50 bps increase is definitely in play. We need to keep an open mind.” On the same line was Fed Governor Michelle Bowman who said, “Fed should consider more 75 basis-point interest rate hikes at coming meetings in order to bring high inflation back down to the central bank's goal.”

It should be noted that the RBI’s 0.50% rate hike couldn’t impress the INR bulls amid broad fears of inflation and recession, especially tied to Asia amid the US-China tussles over Taiwan. Reuters came out with the news suggesting that China is up for ‘regular’ military drills east of the Taiwan Strait median line. That said, the dragon nation’s Foreign Ministry announced on Friday that they will sanction US House of Representative Speaker Nancy Pelosi over the Taiwan visit. On the other hand, Taiwan's Defense Ministry reported 66 Chinese aircraft conducting activities in the Taiwan Strait as of 5 pm local time on Sunday. Further, US Secretary of State Anthony Blinken mentioned that China's provocative actions were a significant escalation.

Looking forward, the monthly inflation numbers from the US and India will be crucial for the USD/INR buyers amid hopes of witnessing the 80.00 psychological magnet back to the chart.

Technical analysis

A daily closing beyond the three-week-old descending resistance line, around 79.60, appears necessary for the USD/INR buyers to keep reins. Until then, the odds of witnessing a pullback towards the 50-DMA support near 78.80 can’t be ruled out.