• Indian Rupee (INR) falls after RBBI stayed pat
  • RBI raised the inflation outlook as pressure to taper increases
  • US Dollar (USD) set for gains versus major peers across the week
  • US non-farm payroll in focus

The US Dollar Indian Rupee (USD/INR) exchange rate is moving higher after three straight days of losses. The pair settled -0.07% on Thursday at 74.09. At 11:00 UTC, USD/INR trades +0.09% higher at 74.16.

The Reserve Bank Of India, as expected kept interest rates at record lows. The central bank’s policymakers voted unanimously to keep the key lending rate at 4% and the borrowing rate unchanged at 3.35%.

However, the RBI also raised its inflation forecast and said it would normalize liquidity conditions signaling that policy makers are edging towards tapering support. These moves are being interpreted as a sign that the RBI is becoming less dovish.

Domestic equities fell following the RBI announcement and after Reliance Industries tumbled after India’s highest court ruled that the arbitration order stopping Future Retail’s sale of assets to Reliance was in fact valid. The Sensex closed 0.4% lower whilst the Nifty 50 closed -0.15%

The US Dollar is trading higher across the board. The US Dollar Index, which measures the greenback versus a basket of major currencies trades +0.18% at 92.41 after strong gains in the previous session. The US Dollar index has gained around 0.25% across the week.

A slightly more hawkish tone from Federal Reserve speakers has boosted demand for the US Dollar. Attention will now turn to the US non-farm payroll for further clues as to the Fed’s next steps.

Expectations are for 870k new jobs to have been created in July after 850k were added in June. The unemployment rate is expected to tick lower to 5.7%, down from 5.9% in June. The lead indicators across the week have given mixed signals.

A better than forecast print could send the US Dollar sharply higher as investors price in a sooner move by the Federal Reserve.