USD/INR trades on a positive note, investors await Fed rate decision

  • Indian Rupee loses traction on Tuesday amid a stronger USD. 
  • Fed is expected to hold rates steady in the range of 5.25%–5.50% at its March meeting.
  • The US Fed interest rate decision on Wednesday will be the highlight of this week. 

Indian Rupee (INR) weakens on Tuesday on US Dollar (USD) purchases by state-run banks. The lower speculation that the US Federal Reserve (Fed) may cut interest rates in June provides some support to the Greenback and lifts the USD/INR pair. The Fed is widely anticipated to hold rates steady for a fifth straight time at its March meeting on Wednesday and maintain a data approach to ensure inflation returns sustainably to its 2% target. Nonetheless, there is still a possibility that Fed officials might reduce the number of rate cuts to two from the three rate cuts they expected earlier this year. 

Looking ahead, the US February Building Permits and Housing Starts are due on Tuesday. Investors will closely watch the US Fed interest rate decision on Wednesday and take more cues about the future trajectory of interest rates from Fed Chair Jerome Powell during the press conference. On Thursday, India’s S&P Global Manufacturing and Services PMI will be released. 

Daily Digest Market Movers: Indian Rupee remains vulnerable amid global uncertainties

  • Foreign investors purchased bonds worth about 100 billion Rupees ($1.21 billion) on a net basis in March, bringing the total net purchase to more than 375 billion Rupees in the first two months of 2024.
  • Foreign portfolio investors increased their holdings of Indian government bonds by roughly 50% since the index inclusion news less than six months ago.
  • India’s foreign exchange climbed from $6.55 billion to $625.63 billion in just two years, while Indian gold reserves rose from $569 million in 2021 to $48.4 billion this week in March 2024, according to the Reserve Bank of India (RBI).  
  • The Fed Chair Jerome Powell said earlier this month that the US central bank might cut its benchmark interest rate later this year, even though the continued progress on lowering inflation to the target “is not assured.”
  • Investors have priced in nearly 73% odds that the Fed will cut rates in July, according to the CME FedWatch Tools.

Technical Analysis: Indian Rupee remains confined in a longer-term band between 82.60 and 83.15

Indian Rupee trades on a weaker note on the day. USD/INR sticks to the range bound theme within a multi-month-old descending trend channel around 82.60–83.15 since December 8, 2023. 

From a technical perspective, the bearish outlook of USD/INR remains intact in the near term as the pair is below the key 100-day Exponential Moving Average (EMA) on the daily timeframe. However, the 14-day Relative Strength Index (RSI) returns above the 50.0 midline, indicating that further upside cannot be ruled out. 

The first upside barrier will emerge near the 100-day EMA and a psychological mark at 83.00. Further strength could draw in USD/INR bulls and inspire another upswing to the upper boundary of the descending trend channel near 83.15. A decisive break above this level will see a rally to 83.35 (high of January 2), followed by the 84.00 round figure. 

On the flip side, the initial support level for USD/INR is seen near a low of March 14 at 82.80. The key contention level is located at the lower limit of the descending trend channel at 82.60. Any follow-through selling could extend the pair’s downtrend to 82.45 (low of August 23), en route to 82.25 (low of June 1).

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 Australian Dollar.

USD   -0.01% 0.02% 0.08% 0.27% 0.47% 0.19% 0.06%
EUR 0.01%   0.05% 0.08% 0.26% 0.48% 0.19% 0.07%
GBP -0.02% -0.03%   0.06% 0.25% 0.45% 0.17% 0.03%
CAD -0.08% -0.09% -0.02%   0.17% 0.39% 0.11% -0.01%
AUD -0.24% -0.24% -0.21% -0.16%   0.25% -0.04% -0.17%
JPY -0.50% -0.49% -0.46% -0.40% -0.19%   -0.28% -0.40%
NZD -0.17% -0.18% -0.15% -0.10% 0.09% 0.31%   -0.11%
CHF -0.05% -0.07% -0.03% 0.01% 0.19% 0.42% 0.12%  

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 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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