Aims to print a new all-time high above 79.40 as US inflation buzzes

  • USD/INR is expected to cross an all-time high at 79.40 amid firmer DXY.
  • Indian Rupee may show signs of recovery as FII returns to Dalal Street.
  • Oil prices are regaining their glory as investors supported supply concerns.

USD/INR is targeting its all-time high at 79.40 amid a broader strengthening US Dollar Index (DXY). The asset is performing better as higher US Consumer Price Index (CPI) estimates strengthen the case for a 75 basis point (bp) interest rate hike by the Reserve Federal (Fed).

Inflation is already skyrocketing in the US economy and even this time investors are seeing a slight improvement to 8.7%. Last week’s upbeat U.S. Nonfarm Payrolls (NFP) release pleased Fed policymakers to follow their extreme policy tightening measures. One factor that Fed policymakers should worry about is the decline in average hourly wages as well as US employment data.

The combination of soaring price pressures, which have devalued households’ paychecks, and falling average hourly wages will create more problems for them. Lower incomes will reduce consumption and savings, and possibly aggregate demand. In later stages, a shift in aggregate demand could impact the greenback.

On the Indian Rupee front, a decent rally in Indian indices since last week indicates that Foreign Institutional Investors (FIIs) are returning to Dalal Street. This could generate large inflows of funds into the Indian market and support the Indian rupee. Additionally, the kick off of the FY22 Q1 earnings season may bolster the Indian Rupee bulls.

Meanwhile, oil prices remain at higher levels as investors focus on supply issues. The oil cartel is unable to produce more oil, with the exception of Saudi Arabia and the United Arab Emirates (UAE), which are already operating at maximum capacity levels.