Indian Rupee opens marginally lower as US Dollar trades firmly

The Indian Rupee (INR) began the trading day with a slight decline against the US Dollar (USD) on Thursday, as the USD/INR pair climbed to around 95.35, following a brief correction the previous day. This rise in the USD/INR pair was attributed to growing concerns over a potential long-term disruption in global energy supplies, which bolstered the strength of the US Dollar.

At present, the US Dollar Index (DXY) is trading near its high of 100.00, indicating a firm performance of the US Dollar against its counterparts. Despite the USD's dominance due to escalating Middle East tensions, the US Federal Reserve's (Fed) interest rate hike fears have been tempered by expectations of a slowdown in US Consumer Price Index (CPI) growth in July.

According to TD Securities, this data should provide some respite for the Fed regarding the need for tighter monetary policy in the near term, as normalization in services prices and controlled tariff pass-through diminish concerns about persistent core inflation. Consequently, TD Securities stands by its view that the Fed will maintain its current policy stance throughout the year.

Market sentiment has remained relatively unchanged since the release of the July CPI report, with the probability of a September interest rate hike still hovering just below 50%. Critical oil supply routes, like the Strait of Hormuz, which account for nearly 20% of global energy trade, remain unresolved, leading to a rebound in oil prices.

As oil-importing economies like India are adversely affected by high oil prices, the INR tends to underperform in such a scenario. On Wednesday, OPEC's revised global oil demand growth forecast from 780,000 barrels per day (bpd) to 580,000 bpd contributed to the sharp decline in oil prices. In India, retail inflation increased to 4.45% YoY in July, marginally close to the RBI's tolerance band of 2%-6%.

The USD/INR pair is currently trading near 95.35, with a slight bearish bias, as it remains below the 20-period Exponential Moving Average (EMA) level of 95.50. Market momentum is currently under this short-term trend, indicating limited upward potential in the near term. The Relative Strength Index (14) at 46.74 suggests a lacklustre bullish outlook.

If the pair breaks below the 95.30 support level, the August 5 low of 94.83 would provide crucial support. A recovery, on the other hand, would require the INR to surpass the 20 EMA at 95.50 to shift towards a more positive bias. Looking ahead, the next major hurdle for the INR is the 96.00 level.