- Indian Rupee struggles to gain on rising oil prices, US yields.
- The Middle East tension has fueled the safe-haven flows, which benefit the US Dollar.
- Market players await the preliminary Q3 US Gross Domestic Product on Thursday, which is expected to grow 4.2%.
Indian Rupee (INR) recovery loses steam on Thursday. The higher Treasury bond yields and a rebound of oil prices exert some selling pressure on the INR as the currency is still driven by global factors and market sentiment. That being said, a speech by Israel's Prime Minister Benjamin Netanyahu has fueled safe-haven flows and benefits to the US Dollar (USD). Netanyahu warned that Israel is in a battle for its existence and is preparing a ground invasion of Gaza, but he declined to provide any specifics on the timing or other details regarding the operation.
The investors’ attention will be India's Balance of Payments for the second quarter (Q2). Furthermore, the preliminary estimate of the US Q3 Gross Domestic Product (GDP) will be in the spotlight on Thursday. The growth number is expected to show a 4.2% expansion.
Daily Digest Market Movers: Indian Rupee remains sensitive to market sentiment
- The US New Home Sales for September increased to 759,000 MoM, above the market expectation of 680,000.
- Reserve Bank of India (RBI) has provided support for the Indian Rupee for several sessions, with recent days witnessing an aggressive level of intervention.
- US S&P Global Manufacturing PMI for October improved to 50, better than the estimation of 49.5. The Services PMI climbed to 50.9, better than expected.
- US S&P Global Composite PMI arrived at 51 in October from the previous reading of 50.2.
- The RBI's monetary policy committee said the central bank will continue focusing on maintaining inflation at the 4% target.
- RBI member Varma is a bit more optimistic about India's economic development than a few months ago, but concerns remain since the economy is now 'disproportionately' reliant on household spending and other issues.
- RBI forecasts India's Gross Domestic Product (GDP) will grow at 6.5% in the current fiscal year.
- The International Monetary Fund (IMF) revised up its growth forecasts for India by 20 basis points (bps) to 6.3% in October.
- Growth in India is expected to gain momentum for the remainder of 2023, according to the RBI's October bulletin.
- India's Finance Minister will closely monitor the impact of the ongoing conflicts in the Middle East on the supply chain.
- India’s Wholesale Price Index (WPI), the main measure of inflation, dropped -0.26% YoY in September, from 0.52% in August, worse than the market expectation of 0.50%.
Technical Analysis: The Indian Rupee loses momentum above the key support level
The Indian Rupee weakens on the day. The USD/INR upward bias remains intact as the pair holds above the key 100- and 200-day Exponential Moving Averages (EMA) on the daily chart. The immediate upside barrier to watch is seen at 83.30 (high of October 4). Further north, the all-time high around 83.45 will be the next resistance, followed by a psychological round mark at 84.00. On the downside, a breach of the 83.00 mark could drag the pair towards 82.82 (low of September 12), en route to 82.65 (low of August 4).
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 New Zealand Dollar.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | -0.01% | 0.53% | 0.72% | 0.68% | 0.60% | 1.10% | -0.02% | |
| EUR | 0.00% | 0.53% | 0.72% | 0.68% | 0.60% | 1.10% | -0.03% | |
| GBP | -0.54% | -0.55% | 0.18% | 0.16% | 0.05% | 0.53% | -0.56% | |
| CAD | -0.73% | -0.74% | -0.19% | -0.07% | -0.11% | 0.38% | -0.75% | |
| AUD | -0.68% | -0.68% | -0.14% | 0.04% | -0.08% | 0.43% | -0.71% | |
| JPY | -0.58% | -0.65% | -0.09% | 0.12% | 0.09% | 0.48% | -0.63% | |
| NZD | -1.12% | -1.14% | -0.63% | -0.39% | -0.43% | -0.48% | -1.14% | |
| CHF | 0.01% | 0.02% | 0.52% | 0.74% | 0.69% | 0.60% | 1.07% |
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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