USD/INR softens on RBI intervention, investors brace for US CPI release
|- The Indian Rupee gains traction in Wednesday’s early European session.
- RBI intervention helps to limit INR’s losses.
- The Indian and US CPI inflation data will be the highlights later on Wednesday.
The Indian Rupee (INR) extends its upside on Wednesday, bolstered by the strong intervention from the Reserve Bank of India (RBI). Additionally, the US Dollar (USD) selling by exporters and profit-booking by speculators provide some support to the local currency.
However, the upside for the INR might be limited due to the concern about India’s sluggish growth, widening trade deficit, rising crude prices and the risk of fresh US trade tariffs. Later on Wednesday, investors will keep an eye on the Indian Consumer Price Index (CPI) for January, Industrial Output and Manufacturing Output. On the US docket, the CPI inflation will be closely watched. Also, the Federal Reserve’s (Fed) Raphael Bostic and Christopher Waller are set to speak.
Indian Rupee strengthens despite trade tensions
- "The central bank's decisive hand is likely to stabilise the rupee in the near term, with the direction thereafter to be dictated by global dollar movements," DBS Bank said in a note.
- Indian Rupee depreciated 3.60% since September 2024, which was lower compared to the Japanese Yen (-6.49%), Canadian Dollar (-5.71%), British Pound (-7.58%), Australian Dollar (-9.04%), and Euro (-7.53%), according to the Bloomberg data.
- Foreign investors have pulled out over $7.5 billion, on a net basis, from Indian stocks and bonds so far this year.
- In his semi-annual report to Congress, Fed’s Powell said the Fed officials “do not need to be in a hurry" to cut interest rates due to strength in the job market and solid economic growth.
- Powell further stated that Donald Trump's tariff policies could put more upward pressure on prices, making it harder for the central bank to lower rates.
USD/INR’s shooting star received confirmation, downward pressure expected in the shorter term
The Indian Rupee edges higher on the day. According to the daily chart, the USD/INR pair keeps the bullish vibe above the key 100-day Exponential Moving Average (EMA), indicating that the support is likely to hold rather than break.
Additionally, the upward momentum is reinforced by the 14-day Relative Strength Index (RSI), which stands above the midline near 53.00, suggesting that further upside looks favorable.
The first upside target for USD/INR emerges at the 87.00 psychological level. Sustained trading above this level could pave the way to an all-time high near 88.00. Further north, the next hurdle is seen at 88.50.
On the other hand, the initial support level is located at 86.51, the low of February 3. Bearish candlestick below the mentioned level could expose 86.14, the low of January 27.
Indian economy FAQs
The Indian economy has averaged a growth rate of 6.13% between 2006 and 2023, which makes it one of the fastest growing in the world. India’s high growth has attracted a lot of foreign investment. This includes Foreign Direct Investment (FDI) into physical projects and Foreign Indirect Investment (FII) by foreign funds into Indian financial markets. The greater the level of investment, the higher the demand for the Rupee (INR). Fluctuations in Dollar-demand from Indian importers also impact INR.
India has to import a great deal of its Oil and gasoline so the price of Oil can have a direct impact on the Rupee. Oil is mostly traded in US Dollars (USD) on international markets so if the price of Oil rises, aggregate demand for USD increases and Indian importers have to sell more Rupees to meet that demand, which is depreciative for the Rupee.
Inflation has a complex effect on the Rupee. Ultimately it indicates an increase in money supply which reduces the Rupee’s overall value. Yet if it rises above the Reserve Bank of India’s (RBI) 4% target, the RBI will raise interest rates to bring it down by reducing credit. Higher interest rates, especially real rates (the difference between interest rates and inflation) strengthen the Rupee. They make India a more profitable place for international investors to park their money. A fall in inflation can be supportive of the Rupee. At the same time lower interest rates can have a depreciatory effect on the Rupee.
India has run a trade deficit for most of its recent history, indicating its imports outweigh its exports. Since the majority of international trade takes place in US Dollars, there are times – due to seasonal demand or order glut – where the high volume of imports leads to significant US Dollar- demand. During these periods the Rupee can weaken as it is heavily sold to meet the demand for Dollars. When markets experience increased volatility, the demand for US Dollars can also shoot up with a similarly negative effect on the Rupee.
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