USD/INR Edges Higher Ahead Of FOMC

The recent drift lower in USD/INR has ended in the early part of today's session. We are back close to 79.90, after getting to the low 79.70 late yesterday. The move higher is in line with slightly higher USD levels, but the focus is likely to remain on the 80.00 level in the near term, particularly ahead of the FOMC decision.

• Futures expiry today is not expected to produce the same fireworks as last month, with less outstanding interest (5.5bn for July, compared to over 8bn last month according to Bloomberg). Potentially less RBI intervention in the forward space has also likely aided these trends.
• Onshore bond yields are drifting lower, back sub 7.40%, although we remain within recent ranges. There is some talk that domestic inflation pressures may be peaking. Note also the RBI decision is due at the end of next week.
• We would expect RBI to remain active to curb any excessive INR move. If we see broad based USD strength (say following today's FOMC decision) the 80.00 level may give way, but the RBI is likely to curb any INR underperformance on a NEER/TWI basis.