- The US dollar–Indian rupee pair traded noisily after the FOMC decision, with confusion from the press conference adding volatility.
- Despite expectations for potential Fed rate cuts, structural factors and India’s currency management keep USD/INR biased toward consolidation with an upward lean.
The US dollar has been pretty noisy during the trading session on Wednesday against the Indian rupee, which, of course, is not a huge surprise after all. The interest rate decision always causes a bit of noise. And of course, we have a press conference afterward that is throwing quite a bit of confusion into the markets. But it looks as if most traders believe that the Federal Reserve may be cutting rates going forward. That's the case; it works against the US dollar, but at the same time, you need to keep in mind that this currency pair is quite a bit different than other ones.
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To begin with, the Bank of India is well known to intervene directly in this pair to manage the currency. When you look at the currency pair, you can see just how big a move to the upside we have seen over the last several months. And this isn't something that gets turned around in a flash. Because of this, I think you probably see more consolidation than anything else, as it looks like the 90 rupee level is going to offer a bit of support, albeit probably more of the psychological kind.
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If we break down below there, then the 89.5 rupee level is the next area that I think is interesting. Ultimately, the Indian economy is in a strange place, and the rupee shows that as it continues to shrink. The global trade situation, of course, has a lot to do with what's going on here as well. And if we do in fact see the US slip a bit, that will have the rest of the world slipping. And this obviously has a major influence on economies like India that are so heavily driven by exports, be it to China or to Asia or even North America. With all that being said, I think this remains a buy on the dip type of situation.
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