USD/INR inches lower due to potential market intervention by RBI

• The Indian Rupee holds ground, with the RBI's frequent interventions keeping it above its record low of 88.87.
• India's inflation is projected to ease to 1.7%, below the RBI's 2-6% target, boosting expectations of interest rate cuts.
• The US government shutdown may continue until Tuesday due to the Columbus Day holiday on Monday.

The Indian Rupee (INR) remains steady against the US Dollar (USD) on Monday, after registering losses in the previous session. The USD/INR pair hovers around 88.70 during the Asian hours, with the Reserve Bank of India's (RBI) frequent interventions preventing the INR from breaching its record low of 88.87, last seen on September 24.

Traders will be watching the annual India Consumer Price Index (CPI) data for September later in the day. The Indian Rupee could face pressure as September's inflation is expected to ease to 1.7%, below the RBI's 2-6% target, fueling expectations of rate cuts.

The INR gained ground in the previous session due to optimism surrounding India-US trade talks and steady foreign institutional inflows, as FIIs have been purchasing Indian equities in the cash segment since October 7.

US Dollar struggles amid ongoing government shutdown

• The US Dollar Index (DXY), which measures the value of the US Dollar (USD) against six major currencies, is remaining subdued and trading around 98.90 at the time of writing, after registering more than 0.5% losses in the previous session.
• The US Dollar lost ground as US President Trump said on Friday that there's no need to meet China's President Xi Jinping at the upcoming South Korea summit and threatened to impose 100% tariffs on Chinese imports. China also responded by warning to retaliate if Trump fails to back down on his threat to impose 100% tariffs on Chinese imports. However, US Trump shared some conciliatory remarks in his post on Truth Social on Sunday, noting that China's economy "will be fine" and that the US wants to "help China, not hurt it."
• The Greenback faces challenges amid the ongoing US government shutdown. The first US Federal paychecks for October were expected on Friday, but were delayed due to the government shutdown. The disruption is expected to continue at least until Tuesday, as the United States observes the Columbus Day holiday on Monday, with no resolution to the shutdown yet in sight.
• The preliminary University of Michigan's Consumer Sentiment Index edged lower to 55.0 for October, from 55.1 in September. This print came in better than the market expectation of 54.2. Meanwhile, the Current Conditions Index improved to 61.0 from 60.4, while the Expectations Index retreated to 51.2 from 51.7.
• Federal Reserve (Fed) Bank of St. Louis President Alberto Musalem said on Friday that inflation is running high. Musalem added that the labor market is showing signs of potential weakness and that a balanced approach to monetary policy only works if inflation expectations are anchored. Meanwhile, San Francisco Fed President Mary Daly said that inflation has come in much less than she had feared. Daly further stated that the US central bank is projecting additional cuts in risk management.
• The Federal Open Market Committee (FOMC) Minutes from the September meeting suggested policymakers are leaning toward further rate cuts this year. The majority of policymakers supported the September rate cut and signaled further reduction later this year. However, some members favored a more cautious approach, citing concerns about inflation.
• The CME FedWatch Tool suggests that markets are now pricing in nearly a 96% chance of a 25-basis-point Fed rate cut in October and an 87% possibility of another reduction in December.

Technical Analysis: USD/INR tests nine-day EMA support

USD/INR stays muted at 88.70 during the Asian hours on Monday, with technical analysis suggesting bullish bias as the pair remains within the ascending channel pattern. Additionally, the 14-day Relative Strength Index (RSI) remains above the 50 level, strengthening the bullish bias.

The USD/INR pair may target the initial resistance at the all-time high of 88.87. A break above this level would support the pair to explore the region around the upper boundary of the ascending channel around 89.50.

On the downside, the USD/INR is testing the immediate support at the nine-day Exponential Moving Average (EMA) of 88.70. A break below this level would weaken the short-term price momentum and prompt the pair to test the ascending channel's lower boundary, aligned with the monthly low of 88.51, which was recorded on October 10.

USD/INR: Daily Chart