USD/INR remains sideways as RBI continues to defend Indian Rupee

• The Indian Rupee continues to trade sideways in the 88.75-89.10 range against the US Dollar.
• A slight improvement in FIIs' sentiment towards the Indian stock market could lend support to the Indian Rupee.
• Fed officials: Daly and Williams support more interest rate cuts this year.

The Indian Rupee (INR) opens in its two-week-long usual range of against the US Dollar (USD) on Friday. The USD/INR pair continues to wobble near its all-time low border as the Reserve Bank of India (RBI) keeps supporting the Indian Rupee from further depreciation against the US Dollar.

The overall trend in the Indian Rupee has remained weak since the increase in tariffs imposed by the United States (US) on imports from India to 50%. Washington raised import duties to penalize New Delhi for buying the oil from Russia. The US has been criticizing India for buying the Russia oil, citing that funds mobilized from the Southeast Asian nation are supporting Moscow to continue the war in Ukraine.

A strong demand for the US Dollar from Indian importers to purchase oil and jewellery has been a major drag on the Indian Rupee. Another reason behind the persistent weakness in the Indian Rupee has been the consistent outflow of overseas funds from the Indian stock market.

In the July-September period, Foreign Institutional Investors (FIIs) have sold equity shares worth Rs. 1,29,870.96 crores in the Indian secondary market. However, a slight shift has been observed in the sentiment of FIIs towards the Indian equity market as they turned out to be net buyers in the last three trading days. In October 7-9, FIIs have bought Rs. 2,830.10 crores worth of shares. Though the buying amount is significantly lower than the scale of selling seen in the past few months, a shift in sentiment could be a major supporting factor for the Indian Rupee.

Daily digest market movers: Fed dovish remarks could weigh on US Dollar

The Indian Rupee has been holding ground near its all-time low against the US Dollar, even as the latter has stretched its rally. During the press time, the US Dollar Index (DXY), which tracks the Greenback's value against six major currencies, trades firmly near its over two-month high of around 99.50.

The USD Index has been outperforming as its safe-haven demand has increased amid a deepening political crisis in France, following the sudden resignation by Prime Minister Sebastien Lecornu, and trimmed Bank of Japan (BoJ) hawkish bets since Sanae Takaichi has been elected as the new Prime Minister of Japan.

On the domestic front, the situation remains worrisome amid the ongoing US government shutdown as Republicans failed to persuade Democrats to support the short-term funding bill in the US Senate.

Going forward, dovish commentaries from the Federal Reserve (Fed) on the monetary policy outlook could be a major drag on the US Dollar's rally. On Thursday, New York Fed Bank President John Williams told The New York Times that more interest rate cuts are needed this year amid growing labor market risks.

"Slowdown in monthly jobs growth, coupled with other signs that companies are more hesitant to hire, warrants attention, Williams said while arguing that it is appropriate to "bring interest rates back to a neutral setting".

Separately, San Francisco Federal Reserve Bank President Mary Daly also supported the need for more interest rate cuts, citing that the economy is "slowing a bit" and the labour market is "softening".

On the contrary, Fed Governor Michael Barr urged caution on further interest rate cuts, citing that inflationary pressures are unlikely to return to the central bank's 2% target before the end of 2027.

Technical Analysis: USD/INR consolidates near all-time high

USD/INR stays in a tight range between 88.76 and 89.11 for over two weeks. The near-term trend of the pair remains bullish as the 20-day Exponential Moving Average (EMA) slopes higher around near 88.70.

The 14-day Relative Strength Index (RSI) stays above 60.00, suggesting a strong bullish momentum.

Looking down, the pair could slide to near 88.57 and the 20-day EMA, if it breaks below the September 25 low of 88.76.

On the upside, the pair could extend the rally towards the round figure of 90.00 if it breaks above the current all-time high of 89.12.