USD/INR treads waters around 83.20, focus on RBI policy decision

• USD/INR receives upward support due to the Fed’s hawkish tone.
• RBI is expected to maintain its current interest rates at 6.50% in the upcoming meeting.
• US Dollar surges on the back of elevated US Treasury yields.

USD/INR struggles to snap the recent gains, hovering around 83.20 during the Asian session on Tuesday. US Dollar (USD) benefits due to the market caution surrounding the US Federal Reserve’s (Fed) interest rates trajectory.

The Indian Rupee (INR) trades with a negative bias but market participants expect possible intervention from the Reserve Bank of India (RBI) to support the national currency.

The US Dollar Index (DXY) climbed to an 11-month high on the back of higher US Treasury yield, trading around 107.10 by the press time.

The 10-year US Treasury yield rose above its highest level since 2007 after the United States (US) averted a partial government shutdown. The spot price stands at 4.68% at the time of writing.

Additionally, the mixed United States (US) data released on Monday, reinforced the Greenback. US ISM Manufacturing PMI improved to 49.0 in September from 47.6 in the previous reading, above the market consensus of 47.7. Manufacturing Prices Paid fell significantly from 48.4 to 43.8. The Employment Index rose from 48.4 to 51.2.

Federal Reserve (Fed) Governor Michelle Bowman stated on Monday that it sounds appropriate to raise the policy rate further and maintain it at restrictive levels for an extended period.

Fed Vice Chair for Supervision Michael Barr emphasized a cautious approach to monetary policy. Barr stated that the central bank should be mindful not just of how much interest rates will increase, but also of the duration they will be held at a sufficiently restrictive level. Despite this, Barr believes that the Fed can manage inflation without causing significant harm to the job market.

Traders await the US employment data, with the release of the ADP report on Wednesday and the Nonfarm Payrolls on Friday. RBI Interest Rate Decision will also be eyed on Friday, which is expected to remain consistent at current levels of 6.50%.