USD/INR attracts some buyers ahead of Fed rate decision
|- Indian Rupee trades on a weaker note on Wednesday amid the firmer USD and rising crude oil prices.
- Indian economy is expected to grow by 8% this year due to a strong macroeconomic environment, RBI monthly bulletin reported.
- The Fed monetary policy meeting will take center stage on Wednesday.
Indian Rupee (INR) loses momentum near its lowest in a month on Wednesday. The downtick of the pair is backed by the stronger US Dollar (USD), rising crude oil prices, and tracking weakness in other Asian peers. However, the positive outlook of the Indian economy might lift the INR and cap the upside of the pair. The Indian economy is expected to grow by 8% this year, owing to a strong macroeconomic environment that can further India’s growth trajectory, according to the Reserve Bank of India’s (RBI) monthly bulletin on Tuesday.
The US Federal Reserve (Fed) interest rate decision will be in the spotlight on Wednesday, with no change in rate expected. Traders will closely watch Chairman Jerome Powell’s press conference and economic projections after the meeting. On Thursday, India’s S&P Global Manufacturing and Services PMI will be due.
Daily Digest Market Movers: Indian Rupee remains weak amid the global headwinds
- The Foreign Direct Investment (FDI) in India was $25.53 billion, and outflows were $10.11 billion in April 2023-January 2024.
- The net FDI declined 38.4% YoY to $15.41 billion in the first 10 months of this financial year, according to the Reserve Bank of India’s (RBI) March 2024 bulletin.
- The Federal Open Market Committee (FOMC) is widely expected to keep its key federal funds interest rate unchanged in a range of 5.25% to 5.5% and maintain macroeconomic projections at its March meeting on Wednesday.
- Analysts anticipate FOMC’s Powell to reiterate that the central bank wants to see evidence of inflation data in its battle against inflation before cutting rates.
- The US New Home Sales climbed to 10.7% MoM in February from a 12.3% fall in January. Meanwhile, Building Permits rose to 1.9% from a 0.3% decline in the previous reading.
- According to the CME FedWatch Tool, markets have priced in a 63% odds that the Fed will begin the first rate cut in June, with a total of three quarter-point rate cuts this year.
Technical Analysis: Indian Rupee to continue trading in the longer-term band of 82.60–83.10
Indian Rupee trades softer on the day. USD/INR extends the range-bound theme within a multi-month-old descending trend channel around 82.60–83.10 since December 8, 2023.
Technically, USD/INR resumes its bullish bias as the pair bounces above the key 100-day Exponential Moving Average (EMA) on the daily timeframe. The upside momentum is supported by the 14-day Relative Strength Index (RSI) which lies in the bullish territory above 50.0 midline, supporting the buyers for the time being.
If the pair sustains its climb past the strong resistance level near the 100-day EMA and a psychological mark at 83.00, the next upside barrier will emerge near the upper boundary of the descending trend channel at 83.10. Further north, the additional upside filter to watch is 83.35 (high of January 2), en route to the 84.00 round mark.
On the downside, a low of March 14 at 82.80 acts as an initial support level for USD/INR. The potential contention level is located at the lower limit of the descending trend channel at 82.60. A breach of this level could extend the pair’s downtrend to 82.45 (low of August 23) and then 82.25 (low of June 1).
US Dollar price today
The table below shows the percentage change of US Dollar (USD) against listed major currencies today. US Dollar was the strongest against the Japanese Yen.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | -0.04% | -0.02% | 0.06% | -0.07% | 0.34% | 0.02% | 0.09% | |
| EUR | 0.06% | 0.05% | 0.11% | 0.00% | 0.41% | 0.09% | 0.16% | |
| GBP | 0.03% | -0.02% | 0.08% | -0.05% | 0.36% | 0.04% | 0.11% | |
| CAD | -0.05% | -0.10% | -0.04% | -0.11% | 0.29% | -0.02% | 0.05% | |
| AUD | 0.08% | 0.03% | 0.05% | 0.11% | 0.41% | 0.09% | 0.17% | |
| JPY | -0.33% | -0.36% | -0.37% | -0.27% | -0.38% | -0.32% | -0.23% | |
| NZD | -0.03% | -0.07% | -0.04% | 0.03% | -0.09% | 0.31% | 0.07% | |
| CHF | -0.09% | -0.13% | -0.09% | -0.03% | -0.15% | 0.26% | -0.06% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Euro from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent EUR (base)/JPY (quote).
Indian Rupee FAQs
The Indian Rupee (INR) is one of the most sensitive currencies to external factors. The price of Crude Oil (the country is highly dependent on imported Oil), the value of the US Dollar – most trade is conducted in USD – and the level of foreign investment, are all influential. Direct intervention by the Reserve Bank of India (RBI) in FX markets to keep the exchange rate stable, as well as the level of interest rates set by the RBI, are further major influencing factors on the Rupee.
The Reserve Bank of India (RBI) actively intervenes in forex markets to maintain a stable exchange rate, to help facilitate trade. In addition, the RBI tries to maintain the inflation rate at its 4% target by adjusting interest rates. Higher interest rates usually strengthen the Rupee. This is due to the role of the ‘carry trade’ in which investors borrow in countries with lower interest rates so as to place their money in countries’ offering relatively higher interest rates and profit from the difference.
Macroeconomic factors that influence the value of the Rupee include inflation, interest rates, the economic growth rate (GDP), the balance of trade, and inflows from foreign investment. A higher growth rate can lead to more overseas investment, pushing up demand for the Rupee. A less negative balance of trade will eventually lead to a stronger Rupee. Higher interest rates, especially real rates (interest rates less inflation) are also positive for the Rupee. A risk-on environment can lead to greater inflows of Foreign Direct and Indirect Investment (FDI and FII), which also benefit the Rupee.
Higher inflation, particularly, if it is comparatively higher than India’s peers, is generally negative for the currency as it reflects devaluation through oversupply. Inflation also increases the cost of exports, leading to more Rupees being sold to purchase foreign imports, which is Rupee-negative. At the same time, higher inflation usually leads to the Reserve Bank of India (RBI) raising interest rates and this can be positive for the Rupee, due to increased demand from international investors. The opposite effect is true of lower inflation.
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