Indian Rupee trades close to two-month low ahead of US NFP data

The Indian Rupee (INR) has been trading near a two-month low ahead of the US Nonfarm Payrolls (NFP) data release. The INR opened flat against the US Dollar (USD) on Friday but is close to its low of 94.29 observed the previous day. This decline in the INR is attributed to strong inflows of foreign funds through the Reserve Bank of India’s FCNR (B) scheme and reduced expectations of Federal Reserve (Fed) interest rate hikes.

The RBI has managed to bolster its reserve buffers and intervention capacity with $136.38 billion raised through its FX mobilization schemes, including the FCNR (B) window. Fed Governor Christopher Waller's recent comments suggesting a decrease in inflation expectations have also contributed to the weakening of the US Dollar, pushing traders to adjust their hawkish Fed bets.

The upcoming employment report, expected to show only 38,000 private sector jobs created in August, may further weigh on the US Dollar. Technical analysis indicates that the USD/INR pair is currently trading below the 100-day simple moving average, signaling a continued downtrend. The immediate focus for traders will be the INR's performance around the current 94.49 level, with a break below this mark potentially exposing further weakness toward the May low of 94.08.