USD/INR refreshes all-time high after India's soft PMI data

• The Indian Rupee slides to a fresh all-time low around 88.85 against the US Dollar, following weak flash Indian PMI data for September.
• India’s Composite PMI dropped to 61.9 from 63.2 in August.
• Investors await Fed Powell’s speech for fresh cues on the monetary policy outlook.

The Indian Rupee (INR) posts a fresh all-time low around 88.85 against the US Dollar on Tuesday after the release of the preliminary India’s HSBC Purchasing Managers’ Index (PMI) data for September. The report showed that the Composite PMI fell to 61.9 from 63.2 in August amid a slowdown in growth in activities in both the manufacturing and the services sectors.

The Manufacturing PMI came in lower at 58.5 from the prior reading of 59.5. Meanwhile, the Services PMI dropped to 61.6 against 62.9 in August.

The PMI report has signaled pain in new export orders in the wake of higher tariffs imposed by the United States (US) on imports from India. Meanwhile, new domestic orders have increased significantly due to the announcement of new Goods and Services (GST) reforms by the government.

On the global front, investors await the outcome of trade talks between India’s Commerce Minister Piyush Goyal, who visited Washington on Monday and the United States (US) trade representative Jamieson Greer.

A report from Hindustan Times (HT) has stated that people aware of the development said both sides were hopeful that the meeting would yield a breakthrough and help New Delhi and Washington reach a trade deal.

Trade relations between both nations went through a tough phase in the past few months as the US increased tariffs on imports from India to 50% to penalize the Asian economy for buying Oil from Russia. Over the weekend, the US also hiked fees on H-1B visas to $1,00000 to increase employment opportunities for American workers, a move that is unfavorable for Indian IT economies, which rely heavily on business from Washington.

Daily digest market movers: US Dollar trades cautiously ahead of Fed Powell’s speech

• The downside move in the Indian Rupee against the US Dollar has come even when the latter has failed to extend its upside amid firm expectations that the Federal Reserve (Fed) will loosen its monetary policy further in the remainder of the year.
• During the press time, the US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, trades cautiously near Monday’s low around 97.30. The USD Index fell sharply on Monday after failing to extend its three-day winning streak above 97.85.
• In the policy meeting last week, the Fed reduced interest rates by 25 basis points (bps) to 4.00%-4.25% and signaled that the Federal Fund Rate could slide to 3.6% by the year-end.
• On Monday, a slew of Federal Open Market Committee (FOMC) members warned that the central bank should tread cautiously on lowering interest rates further, citing that inflationary pressures remain well-above the 2% target.
• St. Louis Fed President Alberto Musalem, a member of the rate-setting committee, said in his remarks at the Brookings Institution in Washington on Monday that the interest rate cut move last week was more a “precautionary” to support labor market from slowing further. However, there is little room for further easing as “tariffs are adding to inflation, and the impact on prices has not yet been fully felt”.
• On the contrary, newly appointed Fed Governor Stephen Miran, who dissented the majority by voting a 50 basis points (bps) interest rate reduction in the September policy meeting, stated that interest rates are roughly “two percentage points higher” than what needed to tame inflation and are unnecessarily risking labor market. “Fed policy is very restrictive and poses risk to Fed's employment mandate and I believe appropriate Fed funds rate is in mid-2% area, almost 2 percentage points below current level,” Miran said.
• In today’s session, investors will focus on Fed Chair Jerome Powell’s speech at 16:35 GMT.  Investors would like to get cues about the pace at which the Fed will reduce interest rates going forward.
• On the economic front, investors will focus on preliminary US S&P Global PMI data for September, which will be published at 13:45 GMT. The Composite PMI is expected to have remained steady at 54.6, suggesting that the overall business activity expanded at a steady pace.

Technical Analysis: USD/INR surges to near 88.85

USD/INR jumps to 88.85 on Tuesday, the highest level ever seen. The upward-sloping 20-day Exponential Moving Average (EMA) near 88.17 signals more upside in the pair.

The 14-day Relative Strength Index (RSI) jumps to near 65.00, suggesting a strong bullish momentum.

Looking down, the 20-day EMA will act as key support for the major. On the upside, the round figure of 90.00 would be the key hurdle for the pair.