USD/INR marches towards 76.50 as the resurgence of Covid-19 in China sour market mood

• USD/INR is advancing towards 76.50 amid a resurgence of Covid -19 in China.
• Souring market mood has improved safe-haven appeal.
• The DXY has scaled above 99.00 despite the expectation of underperformance from the US NFP.

The USD/INR pair is advancing towards 76.50 amid risk-aversion theme in the market, which has been underpinned on lockdown situation in China. Rising Covid-19 cases in China have renewed fears of restriction on the movement of men, materials, and machines, which can reduce the demand in the economy and henceforth the demand of risk-perceived assets.

The Indian rupee is already underperforming against the greenback on rising oil prices in the global markets. Russia’s invasion of Ukraine has sent the oil prices higher, which is hurting the Indian economy. Boiling oil prices have renewed the risk of wider fiscal deficit amid higher outflows against the oil import. Adding to that, the recent sell-off in the Indian equities by the Foreign Institutional Investors (FII) has affected the Indian rupee to a great extent.

The mighty US dollar index (DXY) is scaling above 99.00 despite the expectation of poor performance from the US Nonfarm Payrolls (NFP), which are due on Friday. The Employment data is likely to land at 488K much lower than the previous print of 678K. The likely underperformance from the US NFP may trim the odds of a 50 basis point (bps) interest rate hike from the Federal Reserve (Fed) in May as the Fed may favor maximum employment rather than price stability.

This week, the US NFP will be the major event to remain in focus. Apart from that, investors will also focus on the speech from Fed President John C Williams, which is due on Tuesday.