Indian Rupee remains firm amid RBI's swap maturity concerns, eyes on US bond yield, oil prices
- Indian Rupee trades firmly, supported by the potential aggressive intervention by the Reserve Bank of India (RBI).
- A rise in US Treasury yields and higher crude oil prices might cap the upside of the Indian Rupee.
- Investors will focus on the RBI Forex swap maturity, US economic data.
Indian Rupee (INR) posts modest gains on Monday. The strengthening of the Indian Rupee is bolstered by the potential aggressive intervention by the Reserve Bank of India (RBI) last week. However, the anticipation that the Federal Reserve (Fed) will hold rates ‘higher for longer’ lifts the US Treasury yields near multi-year highs. However, a rise in oil prices might cap the upside of the Indian Rupee.
Traders will keep an eye on a $5 billion RBI swap transaction, which is set to mature on Monday. The maturity of the USD/INR swaps will wipe out $5 billion from the system while injecting about 400 billion Rupees. Furthermore, the release of the US S&P Global PMI, the first reading of Q3 Gross Domestic Product (GDP), and the Core Personal Consumption Expenditures (PCE) data this week will be closely watched by traders.
Daily Digest Market Movers: Indian Rupee gains momentum amid the uncertainty
- RBI's monetary policy committee said it would continue to concentrate on maintaining inflation at the target of 4%.
- India MPC member Varma said the real rate of 1% will drive inflation towards the target.
- Net foreign direct investment (FDI) in India fell from $18.03 billion in April-August last year to $2.99 billion this year, reflecting a slowing in global activity and a rise in repatriation.
- Fed Chair Jerome Powell and other officials expressed a desire to hold rates unless inflation rises.
- September's US budget deficit was $170 billion. The overall 2023 budget deficit was $1.695 trillion, 23% larger than the previous year and exceeding all pre-COVID deficits.
- RBI Chief Shaktikanta Das said the central bank does intervene in the forex market, but only to prevent excessive volatility of the Indian Rupee.
- Chief Das stated that RBI will monitor the evolving inflation dynamic amid the uncertainty on food inflation.
- India's Finance Minister will focus on the impact of ongoing tensions in the Middle East on the supply chain.
- The Indian government is concerned with the settlement currency, the yuan, as Indian refiners have used the yuan to pay for some oil from Russian sellers.
- The RBI's October bulletin suggested growth is expected to gain momentum through the rest of the year.
- The RBI sold a net $3.86 billion in the spot foreign exchange market in August.
- India’s Wholesale Price Index (WPI) for September came in at -0.26% YoY from 0.52% in the previous reading, missing the market estimation of 0.50%.
Technical Analysis: Indian Rupee holds above the 83.00 psychological mark
The Indian Rupee kicks off the week in a positive mood against the US Dollar (USD). The USD/INR pair trades within a narrow range of 83.15-83.30 and the key contention level is seen at the 83.00 psychological round mark. A breach below the latter could see a drop to 82.82 (low of September 12), followed by 82.65 (low of August 4). On the upside, the first resistance level for USD/INR is located near a high of October 4 at 83.30, en route to the all-time high around 83.45, followed by a psychological figure at 84.00. In the meantime, the pair holds above the 100- and 200-day Exponential Moving Averages (EMA) on the daily chart, which hints that further upside looks favorable.
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 Swiss Franc.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | -0.59% | -0.04% | 0.52% | 0.03% | 0.24% | 1.34% | -1.01% | |
| EUR | 0.59% | 0.57% | 1.11% | 0.61% | 0.82% | 1.92% | -0.45% | |
| GBP | 0.06% | -0.54% | 0.58% | 0.09% | 0.28% | 1.39% | -0.95% | |
| CAD | -0.54% | -1.15% | -0.58% | -0.50% | -0.30% | 0.77% | -1.56% | |
| AUD | -0.03% | -0.62% | -0.09% | 0.49% | 0.20% | 1.31% | -1.06% | |
| JPY | -0.23% | -0.83% | -0.29% | 0.28% | -0.19% | 1.08% | -1.25% | |
| NZD | -1.36% | -1.91% | -1.41% | -0.82% | -1.32% | -1.12% | -2.43% | |
| CHF | 1.01% | 0.42% | 0.95% | 1.54% | 1.05% | 1.26% | 2.30% |
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.
Author
Lallalit Srijandorn
FXStreet
Lallalit Srijandorn is a Parisian at heart. She has lived in France since 2019 and now becomes a digital entrepreneur based in Paris and Bangkok.
