USD/INR remains above 71.00 after bouncing off two-week low

• USD/INR snaps three-day losing streak amid cautious optimism in Asia.
• Coronavirus fears remain intact, China Caixin services PMI weakens.
• RBI in the spotlight, updates from China, US data will also be in focus.

USD/INR recovers 0.14% to 71.22 as markets in India open for Wednesday’s trading session. In doing so, the pair stops the previous three-day declines.

The underlying reason for the pair’s pullback from a two-week low could be attributed to the cautious optimism in Asian equities coupled with fears of Coronavirus outbreak. The deadly virus has so far claimed nearly 480 lives in China while also infecting +16,000 people.

Also contributing to the pair’s moves could be the traders’ wait for Thursday’s Reserve Bank of Indian’s (RBI) interest rate decision. The Indian central bank is expected to hold its current monetary policy unchanged with the key repurchase rate being at 5.15%. “The sharp rise in inflation over recent months has effectively ruled out a rate cut at this meeting; the 7.35% y/y CPI reading in December, well above the RBI's 2-6% target was due in large part to a surge in vegetables and pulses,” said analysts at TD Securities.

On the other hand, the US dollar’s broad recovery, backed by upbeat data, as well as three-month low of China’s recently released Caixin Services PMI also seems to justify the quote’s latest pullback.

While the RBI’s rate decision and updates from China will be the key catalysts ahead of Friday’s US employment data, the US ADP Employment Change, Trade Balance and the ISM Non-Manufacturing PMI will offer intermediate direction.

Technical Analysis

71.00 and 200-day SMA level of 70.72 restrict the pair’s immediate declines while the last week’s high near 71.85 holds the key to pair’s run-up towards 72.00.