USD/INR gains traction on stronger USD, all eyes on Fed decision
|- Indian Rupee struggles to gain on the stronger USD.
- The Reserve Bank of India (RBI) Governor highlighted the optimistic view for the Indian economy.
- Investors will closely monitor the Federal Open Market Committee (FOMC) policy meeting on Wednesday.
Indian Rupee ticks lower on Wednesday on the renewed US Dollar (USD) demand. That being said, the higher-for-longer US interest rate narrative has lifted US Treasury bond yields to multi-year highs, which acts as a tailwind for the pair. Elevated geopolitical risks in the Middle East might also lead to higher oil prices and impact Indian importers.
Nonetheless, the Reserve Bank of India (RBI) Governor Shaktikanta Das said Tuesday that India’s growth momentum remains robust and the Gross Domestic Product (GDP) in the second quarter of Fiscal Year 2024 is expected to surprise on the upside. Das further stated that geopolitical risks are the biggest challenge to growth. However, he is confident that India is in a better position compared to other countries to deal with potentially risky situations.
Market participants will closely monitor the Federal Open Market Committee (FOMC) policy meeting, with no change in rates expected. However, a hawkish stance during the press conference might trigger volatility in the Indian market. Later this week, the spotlight will shift to US Nonfarm Payrolls on Friday.
Daily Digest Market Movers: Indian Rupee maintains a bearish vibe amid multiple challenges
- Reserve Bank of India (RBI) Governor Shaktikanta Das said GDP growth for the second quarter of FY24 will exceed expectations.
- RBI Governor Das said geopolitical risks are the biggest challenge, but India is better placed compared to other countries to deal with any potentially risky situation.
- Overseas investors sold $2.74 billion in Indian equities in October, marking the largest monthly sell-off since January.
- According to the RBI, India's foreign currency reserves fell by $2.36 billion to $583.53 billion in the week ending October 20.
- RBI will maintain watch over inflation to ensure that it remains within the 4% target.
- The International Monetary Fund (IMF) raised its projected growth rate for India to 6.3% in October.
- The US S&P/Case-Shiller Home Price Indices for August improved to 2.2% YoY versus 0.2% prior, better than the expectation of 1.6%.
- The US Core Personal Consumption Expenditure Index (PCE) for September arrived at 3.7% YoY from the previous reading of 3.8%, and the headline PCE arrived at 3.4% YoY versus the estimation of 3.4%.
Technical Analysis: Indian Rupee keeps a bearish stance in a familiar range
The Indian Rupee trades with mild losses on the day. The USD/INR pair trades within a familiar range of 83.00–83.35. However, the technical outlook suggests that the bullish bias stays intact as the pair holds above the 100- and 200-day Exponential Moving Averages (EMA) on the daily chart.
The key resistance level will emerge at the upper boundary of the trading range of 83.35. A decisive break above the latter will see a rally to year-to-date (YTD) highs of 83.45. The additional upside filter to watch is a psychological round figure at 84.00. On the other hand, the confluence of a low of October 20 and a round mark at 83.00 acts as a critical contention level. Any follow-through selling below 83.00 will pave the way to a low of September 12 at 82.82, followed by a low of August 4 at 82.65.
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 strongest against the Swiss Franc.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | 0.23% | 0.18% | 0.96% | 0.37% | 0.93% | 0.57% | 1.78% | |
| EUR | -0.23% | -0.06% | 0.74% | 0.15% | 0.72% | 0.35% | 1.55% | |
| GBP | -0.17% | 0.05% | 0.80% | 0.20% | 0.76% | 0.38% | 1.60% | |
| CAD | -0.98% | -0.74% | -0.80% | -0.59% | -0.04% | -0.40% | 0.82% | |
| AUD | -0.37% | -0.14% | -0.20% | 0.60% | 0.57% | 0.19% | 1.41% | |
| JPY | -0.94% | -0.70% | -0.76% | 0.01% | -0.57% | -0.35% | 0.86% | |
| NZD | -0.55% | -0.35% | -0.38% | 0.42% | -0.20% | 0.36% | 1.23% | |
| CHF | -1.81% | -1.57% | -1.63% | -0.82% | -1.44% | -0.86% | -1.24% |
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
What are the key factors driving the Indian Rupee?
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.
How do the decisions of the Reserve Bank of India impact the Indian 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.
What macroeconomic factors influence the value of the Indian Rupee?
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.
How does inflation impact the Indian 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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