USD/INR May Test RBI's Resolve Again This Week

USD/INR is pushing higher, with spot up a further 0.4% so far today, with the pair back to 79.55/60. Last Friday's slightly larger than expected rate hike (50bps versus 35bps expected) hasn't provided the rupee with any lasting benefit. Dips sub 79.00 in the pair were well supported. Higher US yields and a firmer USD have weighed. The focus now will be on whether the RBI defends moves towards 80.00, if seen, this week. Last week's move towards 79.80, ahead of the RBI decision, reportedly drew strong intervention flows.

• We also had a speech from the Indian Finance Ministry, which defended the rupee. Similar comments were made earlier by Governor Das. 80.00 is clearly an important level, but central bank resolve may be tested this week if broad based USD gains unfold.
• On the data front, the focus is on Friday's CPI print. The market looks for easing pressures to 6.79% YoY, from 7.01% last month.
• Equity inflow momentum still continues. Onshore equities are firmer again today. Towards the end of last week we had just over $1.6bn in net inflows.
• Such an improved flow backdrop is yet to benefit the INR, it may be that we need to see relief on the trade front first. This could emerge over coming months given the fall in commodity prices.