- USD/INR is likely to continue moving north amid declining investors’ risk appetite.
- The demand for US government bonds is declining ahead of the FOMC minutes.
- One more 25 bps rate hike is expected from the RBI as the current inflation is beyond its tolerance limit.
The USD/INR pair is approaching 82.80 as the US Dollar Index (DXY) has rebounded firmly amid the risk-off market mood. Investors are channelizing their funds into the USD Index amid rising uncertainty ahead of the US opening after an elongated weekend.
The USD Index has delivered a breakout of the consolidation formed in a narrow range of 103.45-103.63 as the risk aversion theme is gaining traction. Also, anxiety among investors is accelerating as investors are anticipating hawkish commentary in the Federal Open Market Committee (FOMC) minutes, which will release on Wednesday. The 10-year yields on US government bonds have climbed above 3.85%.
S&P500 futures have extended their losses further as rising odds of further interest rate hikes by the Federal Reserve (Fed) might refresh recession fears.
The release of the FOMC minutes will provide a detailed explanation behind the rate hike by 25 basis points (bps) to 4.50-4.75% from the Fed. Apart from that, cues about interest rate guidance and current economic fundamentals will be keenly watched.
On the Indian Rupee front, higher inflation is still advocating for further policy restriction by the Reserve Bank of India (RBI). Economists at ANZ Bank expect the Reserve Bank of India (RBI) to deliver one more 25 basis points (bps) rate hike. A note from ANZ Bank stated, “January’s CPI inflation at 6.5% was much above the monetary policy committee’s tolerance limit, jeopardizing the RBI’s near-term inflation projections.”
Meanwhile, oil prices have dropped significantly below $76.60 as investors are worried about economic projections. Also, the Chinese economy is not delivering recovery as expected, which is impacting the oil price. It is worth noting that India is one of the leading importers of oil and lower oil prices will support the Indian Rupee.
