USD/INR gains ground ahead of the Fed Chair Powell’s testimony
|- Indian Rupee edges lower amid the modest USD rebound.
- The RBI's cautious monetary policy approach should strengthen the Indian rupee over time.
- Investors await Fed Chair Powell’s testimony on Wednesday for fresh impetus.
Indian Rupee (INR) trades on a weaker note on Wednesday as traders await fresh catalysts later in the week. The downbeat Indian Services PMI data for February exerts some selling pressure on the INR. The US ISM Services PMI fell to 52.6 in February from 53.4 in January, worse than the estimation of 53.0. The report indicated that inflationary pressures in India were coming down.
Nonetheless, the Reserve Bank of India (RBI) is likely to maintain a cautious stance on monetary policy, while the Federal Reserve (Fed) is likely to cut policy rates before the RBI. This, in turn, provides some support to the Indian Rupee (INR) and might cap the upside of USD/INR.
Investors will closely monitor Fed Chair Powell’s testimony on Wednesday and Thursday, which offers some hints about the timing of the interest rate cuts. On Friday, the US labor market data will be released. The US Nonfarm Payrolls is estimated to add 200,000 jobs in February, while the Unemployment Rate is forecast to remain unchanged at 3.7%.
Daily Digest Market Movers: Indian Rupee remains vulnerable amid the global factors
- The recent HSBC Services PMI data showed the second-weakest cost pressures in the sector since August 2020 and the slowest pace increase in selling charges for two years.
- According to the global rating agency Moody’s, India’s 2024 GDP growth forecast has been raised to 6.8% from the earlier estimate of 6.1% in November 2023.
- The Reserve Bank of India’s (RBI) GDP growth estimate for FY24 is 7%, while the International Monetary Fund’s (IMF) forecast is 6.7%.
- The US ISM Services PMI slipped to 52.6 in February from 53.4 in January, weaker than the expectation of 53.0.
- The New Orders Index improved to 56.1 from 55.0 in the previous reading. The Employment Index dropped to 48.0 versus 50.5 prior, and the Prices Paid Index declined to 58.6 from 64.0 in the previous reading.
Most recent article: Sensex stays pressured, as focus shifts to Powell, US jobs data
Technical Analysis: Indian Rupee remains confined within a longer-term range
Indian Rupee weakens on the day. USD/INR extends the range play around 82.65-83.15, a multi-month-old descending trend channel since December 8, 2023.
The bearish outlook of USD/INR remains intact as the pair is below the 100-day Exponential Moving Average on the daily chart. It’s worth noting that the 14-day Relative Strength Index (RSI) confirms the bearish momentum as it lies below the 50.0 midlines, which supports the sellers for the time being.
A decisive break above the crucial resistance at 83.00, portraying the 100-day EMA and a psychological round figure, USD/INR might climb to the next upside targets at the upper boundary of the descending trend channel at 83.15. Further north, the additional upside filter to watch is a high of January 2 at 83.35, en route to 84.00.
On the downside, the initial support level is seen at the lower limit of the descending trend channel at 82.65. Any follow-through selling might set its sights on the bearish targets at a low of August 23 at 82.45, and finally a low of June 1 at 82.25.
US Dollar price in the last 7 days
The table below shows the percentage change of US Dollar (USD) against listed major currencies in the last 7 days. US Dollar was the weakest against the Japanese Yen.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | -0.16% | -0.20% | 0.39% | 0.38% | -0.49% | 1.20% | 0.55% | |
| EUR | 0.18% | -0.02% | 0.56% | 0.58% | -0.30% | 1.38% | 0.75% | |
| GBP | 0.20% | 0.03% | 0.59% | 0.60% | -0.28% | 1.40% | 0.77% | |
| CAD | -0.40% | -0.57% | -0.60% | 0.00% | -0.88% | 0.81% | 0.20% | |
| AUD | -0.40% | -0.58% | -0.60% | -0.01% | -0.89% | 0.81% | 0.16% | |
| JPY | 0.48% | 0.28% | 0.26% | 0.85% | 0.86% | 1.67% | 1.02% | |
| NZD | -1.21% | -1.40% | -1.43% | -0.82% | -0.82% | -1.72% | -0.66% | |
| CHF | -0.57% | -0.74% | -0.78% | -0.18% | -0.20% | -1.05% | 0.64% |
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).
RBI FAQs
What is the role of the Reserve Bank of India?
The role of the Reserve Bank of India (RBI), in its own words, is "..to maintain price stability while keeping in mind the objective of growth.” This involves maintaining the inflation rate at a stable 4% level primarily using the tool of interest rates. The RBI also maintains the exchange rate at a level that will not cause excess volatility and problems for exporters and importers, since India’s economy is heavily reliant on foreign trade, especially Oil.
How do the decisions of the Reserve Bank of India affect the Rupee?
The RBI formally meets at six bi-monthly meetings a year to discuss its monetary policy and, if necessary, adjust interest rates. When inflation is too high (above its 4% target), the RBI will normally raise interest rates to deter borrowing and spending, which can support the Rupee (INR). If inflation falls too far below target, the RBI might cut rates to encourage more lending, which can be negative for INR.
Does the Reserve Bank of India directly intervene in FX markets?
Due to the importance of trade to the economy, the Reserve Bank of India (RBI) actively intervenes in FX markets to maintain the exchange rate within a limited range. It does this to ensure Indian importers and exporters are not exposed to unnecessary currency risk during periods of FX volatility. The RBI buys and sells Rupees in the spot market at key levels, and uses derivatives to hedge its positions.
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