The Indian rupee rebounded on Monday, a move widely attributed to suspected intervention by the Reserve Bank of India (RBI), after the currency sold off on Friday in the wake of a hawkish speech by Fed Chair Warsh at the Jackson Hole Symposium. The recovery came despite a jump in oil prices, with analysts noting there was no positive fundamental catalyst for the rupee.

For context, the RBI routinely intervenes in the foreign exchange market by selling dollars from its reserves to smooth excessive volatility in the rupee, and such operations—while not officially confirmed in real time—are often inferred by traders from abrupt intraday moves, as appears to be the case here.

Dollar Strength After Jackson Hole

The US dollar strengthened across the board on Friday following the speech, in which Warsh stated: "I would be hard pressed to describe broad financial conditions as restrictive." Markets interpreted the remark as the Fed Chair pushing back against the recent easing in financial conditions, effectively retightening them.

According to the original analysis, this process extended the corrections in the "debasement" trades, with the dollar returning to levels seen before the US Treasury announcement. Rate hike probabilities for the September Federal Reserve meeting also rose, with markets now pricing a 60% chance of a hike.

Warsh reiterated that the Fed is focused solely on inflation and noted that progress has been slow. On this basis, the analyst argued that only a soft US CPI report could bring hike probabilities below 50% and deter the Fed from raising rates at the upcoming meeting. Should probabilities remain at or above 50%, the Fed could be compelled to hike, since holding steady would itself send a dovish signal.

Outlook for the Rupee

Analysts expect dip-buyers in USD/INR to step back in soon, noting that gains driven by intervention are typically faded absent a change in fundamentals.

In the short term, the rupee is expected to remain driven by oil prices—a key sensitivity for India, which imports the bulk of its crude oil requirements, so higher oil prices widen the current account deficit and add depreciation pressure on the currency. Rangebound price action could persist until the US and Iran reach an agreement and the Strait of Hormuz is reopened. Structurally, the analysis maintains that the rupee remains in a bearish trend against the dollar, with dip-buyers expected to look for opportunities around strong technical levels to push USD/INR toward new highs.

USDINR Technical Analysis – Daily Timeframe

On the daily chart, USDINR is trading between key support at 95.10 and resistance at 96.10. Market participants are expected to continue trading the range—buying at support and selling at resistance—until a breakout occurs on either side.

USDINR Technical Analysis – 4-Hour Timeframe

The 4-hour chart shows a pullback into a minor support zone around the 95.60 level. Buyers are expected to enter there with defined risk below the support to push toward resistance, while sellers will look for a break lower targeting a drop back to the 95.10 support.

USDINR Technical Analysis – 1-Hour Timeframe

On the 1-hour chart, a minor upward trendline adds confluence to the minor support around 95.60. Buyers are again expected to target a rally into the 96.10 resistance, while sellers would seek a break lower to extend the decline toward 95.10.

Upcoming Catalysts

The coming week features the US ISM Manufacturing PMI and Job Openings data on Tuesday, the US ADP report on Wednesday, and Fed's Waller, US Jobless Claims, and the ISM Services PMI on Thursday. The week concludes Friday with the US nonfarm payrolls (NFP) report—data that will shape rate expectations and, by extension, the dollar side of the USD/INR pair.

Update

The RBI has likely intervened again, according to the analysis, as USD/INR fell quickly below the August 25 low. The next target is seen at the 95.10 support, where dip-buyers are expected to step in.

Source: ForexLive