- Indian Rupee trades on a negative note amid the stronger US Dollar.
- India’s Monetary Policy Committee (MPC) kept the repo rate unchanged at 6.5% and maintained its ‘withdrawal of accommodation’ stance, as widely expected.
- Investors await the speech from Fed’s Barkin on Friday for fresh catalysts.
Indian Rupee (INR) trades weaker on Friday on the renewed US Dollar (USD) demand and higher US bond yields. The Reserve Bank of India (RBI) Monetary Policy Committee (MPC) decided to keep the repo rate at 6.5% for the sixth consecutive time on Thursday. The decision was not unanimous this time, with the MPC deciding in favor of an unchanged rate by a 5:1 majority.
During the press conference, India’s MPC acknowledged progress on inflation as CPI has started easing. Nonetheless, the ongoing geopolitical tensions in the Middle East, intermittent spikes led by food price volatility, and global interest rate uncertainty were cited as risks to inflation. The markets anticipate the first rate cut by the RBI at the June meeting after the new government is formed.
Investors have reduced their bets on Fed rate cuts in March due to hawkish remarks from Fed officials and strong US economic data. Dallas Fed L. Logan is set to speak later on Friday. In the absence of top-tier economic data from the US, risk sentiment will likely play a crucial role in the USD/INR pair.
India’s inflation data and Industrial Production will be due next week. The minutes of the MPC meeting will be released on February 22. Investors will monitor the developments surrounding India’s inflation trajectory.
Daily Digest Market Movers: Indian Rupee weakens amid global and inflation risks
- The Reserve Bank of India (RBI) revised GDP growth forecast for FY25 to 7% from 6.5% previously.
- The Reserve Bank of India (RBI) has maintained its inflation projection at 5.4% for 2023–2024 and 4.5% for 2024–25.
- CPI inflation is projected to be 4.5% for the fiscal year 2024–2025, with Q1 at 5%, Q2 at 4%, Q3 at 4.6%, and Q4 at 4.7%.
- The US weekly Initial Jobless Claims fell to 218K for the week ended February 3 from the previous week of 227K, better than the estimation of 220K. Continuing Claims decreased by 23K to 1.891M in the week ended January 27.
- Fed Richmond President Thomas Barkin reiterated policymakers have time to be patient about the timing of rate cuts due to a solid labor market and ongoing disinflation.
Technical Analysis: Indian Rupee ticks up in the 82.70–83.20 long-term trading range
Indian Rupee trades softer on the day. USD/INR remains stuck within a descending trend channel of 82.70–83.20 since December 8, 2023.
In the near term, the pair is below the key 100-period Exponential Moving Average (EMA) in the daily timeframe and the 14-day Relative Strength Index (RSI) lies below the 50.0 midline. This indicates that the pair maintains its bearish bias and the further decline cannot be ruled out.
In case of a bearish trading environment, a low of February 2 at 82.83 will be the first downside target for USD/INR. The potential support level for the pair will emerge at the lower limit of the descending trend channel at 82.70. A breach of this level could draw in enough sellers to send USD/INR back to a low of August 23 at 82.45, followed by a low of June 1 at 82.25.
The key resistance level is seen in the 83.00–83.05 region, portraying the upper boundary of the descending trend channel, the psychological round figure, and the 100-period EMA. Sustained gains above this level could spur a rally to a high of January 18 at 83.20. Further north, the next hurdle is located at a high of January 2 at 83.35, en route to the 84.00 psychological level.
US Dollar price today
The table below shows the percentage change of US Dollar (USD) against listed major currencies today. US Dollar was the strongest against the Swiss Franc.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | 0.01% | -0.02% | -0.02% | -0.04% | 0.06% | -0.30% | 0.10% | |
| EUR | -0.02% | -0.03% | -0.03% | -0.06% | 0.05% | -0.32% | 0.07% | |
| GBP | 0.01% | 0.03% | 0.00% | -0.02% | 0.07% | -0.29% | 0.10% | |
| CAD | 0.02% | 0.03% | 0.00% | -0.02% | 0.07% | -0.28% | 0.12% | |
| AUD | 0.04% | 0.06% | 0.02% | 0.02% | 0.11% | -0.27% | 0.14% | |
| JPY | -0.06% | -0.05% | -0.07% | -0.09% | -0.11% | -0.34% | 0.05% | |
| NZD | 0.30% | 0.32% | 0.28% | 0.28% | 0.26% | 0.36% | 0.40% | |
| CHF | -0.09% | -0.07% | -0.10% | -0.10% | -0.12% | -0.02% | -0.38% |
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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