USD/INR Once Again Eyeing 80.00 Test

The rupee is not seeing any relief from lower oil prices at this stage. Stronger USD sentiment and weaker local equities is offsetting. Spot USD/INR is close to 79.90, with an 80.00 test eyed, which could evoke an RBI response from an intervention standpoint.

• With onshore equities faltering (the NIFTY has failed to test above 18000) the focus could shift to whether offshore equity inflow momentum starts to slow. The past trading month has over $7bn in net inflows for local shares.
• We have to go back to late 2020 to see a stronger period of inflow momentum. In any event, the recent rebound in onshore equities/inflow momentum hasn't provided much relief to INR FX.
• The data calendar is empty this week.
• There hasn't been a huge reaction to the RBI minutes from late last week. Onshore bond yields are higher today, the 10yr back above 7.30% (+4bps), although core yields are higher as well, so there could be spill over from this angle.
• The rough market consensus is for the RBI policy rate to get slightly above 6% in earl 2023 (versus 5.40% currently).
• The pace of rate hikes is expected to slow though, now that rates are closer to neutral, and the worst of inflation upswing may be behind us. However, the next policy meeting is a little over a month away (30th of September).