• USD/INR holds lower ground at two-week low, sidelined of late.
• Chatters surrounding India GDP, New Delhi’s likely inclusion in global bond markets defend bears.
• Risk-aversion, increasing bets on 0.75% Fed rate hike in September favor upside momentum.
• US data, China headlines can entertain traders ahead of NFP.

USD/INR pares recent losses around 79.60 as bulls and bears jostle amid mixed catalysts, snapping a two-day downtrend, ahead of Thursday’s European open. In doing so, the Indian rupee (INR) pair pays little heed to the latest positives surrounding the Indian economic growth and bond market expectations, as well as softer US data.

“India's economy grew 13.5% in the April-to-June quarter, its fastest pace in a year, though economists said growth is likely to lose momentum in coming quarters as higher interest rates cool economic activity,” reported Reuters. The news also mentioned that the last time India's economy grew faster was in April-June 2021 when it gained 20.1% from the pandemic-depressed level a year earlier.

Also exerting downside pressure on the USD/INR prices are expectations that India could be included in global bond indexes in 2023, given some estimates of passive inflows worth $30 billion, per Reuters.

Elsewhere, softer oil prices and the Reserve Bank of India's strong defense of the USD/INR pair above 80.00 also keep the sellers hopeful.

On the other hand, the strong US Treasury yields, as well as hawkish bets on the US Federal Reserve’s (Fed) next moves join the risk-off mood that underpins the US dollar’s safe-haven demand to propel the USD/INR prices.

Recently, Cleveland Federal Reserve Bank President Loretta Mester said on Tuesday that she was not anticipating the Fed to cut rates next year, as reported by Reuters. Further, the newly appointed Dallas Fed President Lory Logan joined the lines of hawkish fellow US central bankers while saying, “Restoring price stability is No. 1 priority.”

Amid these plays, the US 10-year Treasury yields refresh a two-month high of around 3.21% while the two-year bond coupons jump to the highest levels since 2007, near 3.51% at the latest. Further, the CME’s FedWatch Tool portrays 74.0% chance of a 75 basis points Fed rate hike in September, versus 73.0% the previous day.

Looking forward, the US ISM Manufacturing PMI for August, expected 52.8 versus 52.0 prior, could entertain the traders ahead of Friday’s US Nonfarm Payrolls (NFP).

Technical analysis

A sustained break of the monthly support line, now resistance around 79.80, keeps USD/INR bears hopeful of testing an upward sloping trend line support from early Marcy, at 79.10 by the press time.