USD/INR Price News: Finds demand below 81.20 as USD Index attempts recovery

• A recovery in the US Dollar Index has also provided support to USD/INR.
• Growing expectations for a smaller Fed’s interest rate hike have weakened the USD Index broadly.
• Upbeat oil prices and FII outflows might trigger volatility for the Indian Rupee.

The USD/INR pair has picked strength marginally below the critical support of 81.20 as the US Dollar Index (DXY) has attempted a recovery after refreshing a seven-month low at 101.45. The Indian Rupee asset has refreshed its day’s high at 81.35 amid firmer oil prices on a broader note.

The risk appetite of the market participants seems solid as risk-perceived assets like the S&P500 futures are holding on to their gains added in Asia after a four-day winning spell. The USD index has recovered firmly to near 101.60 but is required to clear more filters to claim a bullish reversal. Meanwhile, United States markets are closed on Monday on account of Martin Luther King Jr. Day.

A recovery in the USD Index could be short-lived as the risk profile is still extremely positive. Rising expectations for a smaller interest rate hike by the Federal Reserve (Fed) in its February monetary policy meeting are responsible for the weakness in the US Dollar Index (DXY). As per the CME FedWatch tool, chances of a 25 basis points (bps) interest rate hike by the Fed have scaled above 94%.

On the Indian Rupee front, investors are likely to shift their focus toward the Fiscal Budget FY2023-24, which is scheduled for the first week of February. In the meantime, rising Foreign Institutional Investment (FII) outflows are also impacting the Indian Rupee bulls.

Being one of the major importers of oil, rising oil prices are also expected to impact the Indian Rupee bulls. Strategists at TD Securities expect the global benchmark crude to trade at $100/b in the latter part of 2023 led by China’s reopening and the Fed’s lower rate hike structure, which might keep affecting the Indian Rupee.