• USD/INR struggles to defend the previous day’s recovery from two-month low.
• Fresh fears of Sino-American trade war, downbeat China Caixin Services PMI weigh on sentiment along with recession woes.
• Cautious mood underpins USD/INR rebound but softer US data, downbeat Oil price prod Indian Rupee sellers.
• Fed Minutes should defend Chairman Powell’s hawkish statements to keep USD/INR bulls hopeful.

USD/INR stays defensive around 82.05 amid early Wednesday morning in Europe, keeping the previous day’s U-turn from a two-month low during the sluggish Asian session.

In doing so, the Indian Rupee (INR) pair aptly justifies the market’s cautious mood ahead of the Federal Open Market Committee (FOMC) Minutes for the June meeting. Also defending the pair buyers is the risk aversion in Asia. However, the softer Oil price and recently firmer fundamentals surrounding India prod the USD/INR pair buyers.

Market sentiment in Asia remains downbeat as downbeat prints of China’s Caixin Services PMI for June, to 53.9 versus 57.1 prior, joins the escalating fears of the US-China tension amid fresh warnings of further trade restrictions from Beijing.

Recently, China’s Global Times and former Vice Commerce Minister flagged hardships for the US IT companies, as well as metal players. Earlier in the day, China announced abrupt controls on exports of some gallium and germanium products, effective from August 1. The dragon nation’s latest retaliation is in reaction to the US curb on AI chips’ shipments to Beijing.

Elsewhere, the difference between the two-day and 10-year US Treasury bond yields widened to the most in 42 years and flagged recession fears on Monday, which in turn prod the Oil price. That said, the S&P00 Futures print mild losses whereas the US 10-year and two-year Treasury bond yields remain mostly unchanged near 3.85% and 4.90% by the press time.

It should be noted that the risk-off mood not only underpins the US Dollar’s haven demand but also weighs on the Oil price and caps USD/INR upside, due to India’s reliance on the energy imports. That said, WTI takes offers to reverse the previous day’s heavy gains near $71.00, down 0.50% intraday around the intraday low of $70.86 by the press time.

Looking ahead, Fed Minutes need to back Chairman Jerome Powell’s hawkish statements like, “two more rate hikes in 2023”, to convince USD/INR bulls to keep the reins.