- Indian Rupee trades softer on Monday despite the modest rebound of the USD.
- India’s upbeat GDP growth in the October-December quarter boosts the INR and caps the pair’s upside.
- Market players will focus on the Indian February S&P Global Services PMI, due on Tuesday.
Indian Rupee (INR) trades on a weaker note on Monday. The downside of INR might be limited given the data showing India’s GDP growth in the October-December quarter considerably above forecasts. India's economy grew at its fastest pace in one-and-a-half years in the December quarter, with the economy expanding by 8.4%, against the 6.6% anticipated.
On the other hand, the renewed US Dollar (USD) demand and the prospect of delayed rate cut expectations from the Federal Reserve (Fed) might weigh on the Indian Rupee in the near term. Nonetheless, analysts said that the pair is likely to remain in a narrow band this year as the Reserve Bank of India (RBI) monitors foreign exchange markets closely and intervenes when necessary to prevent excessive volatility in the exchange rate.
The Indian S&P Global Services PMI for February will be due on Tuesday. Investors will closely watch Fed's Chair Jerome Powell testify on Wednesday, which might offer some hints about a broad overview of the economy and monetary policy. On Friday, the US employment data will be released, including the Nonfarm Payrolls (NFP), Average Hourly Earnings, and Unemployment Rate.
Daily Digest Market Movers: Indian Rupee remains sensitive to the multiple headwinds and uncertainties
- India's foreign exchange reserves increased by $2.975 billion to $619.072 billion for the week ending on February 23, according to the Reserve Bank of India (RBI).
- The US ISM Manufacturing PMI came in weaker-than-expected, dropping to 47.8 in February from 49.1 in January.
- The University of Michigan Consumer Sentiment Index eased to 76.9 from 79.6, below the market consensus.
- Boston Fed President Susan Collins and New York’s John Williams stated that the first rate cut will likely be appropriate later this year, while Atlanta’s Raphael Bostic said the first cut in rates would be appropriate probably at the end of this year at the earliest.
- The financial markets have priced in the 70% odds that the Federal Reserve (Fed) will start cutting interest rates at the June meeting.
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Technical Analysis: Indian Rupee is likely to extend range bound of 82.70-83.20
Indian Rupee trades on a softer note on the day. USD/INR has traded within a multi-month-old descending trend channel between 82.70 and 83.20 since December 8, 2023.
In the near term, USD/INR maintains the bearish outlook unchanged as the pair is still below the 100-day Exponential Moving Average on the daily timeframe. The bearish momentum is supported by the 14-day Relative Strength Index (RSI), which holds in the negative zone below the 50.0 midline.
Further selling vibes could drag the pair lower to 82.70, representing the lower limit of the descending trend channel. Further south, the next contention is seen near a low of August 23 at 82.45, followed by a low of June 1 at 82.25.
The potential upside barrier will emerge near the confluence of the 100-day EMA and a psychological round figure at the 83.00 mark. Sustained bullish momentum past this point will pave the way to a high of January 2 at 83.35, en route to 84.00.
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 | -0.24% | 0.06% | 0.41% | 0.71% | -0.16% | 1.43% | 0.19% | |
| EUR | 0.23% | 0.30% | 0.64% | 0.94% | 0.08% | 1.66% | 0.42% | |
| GBP | -0.06% | -0.30% | 0.35% | 0.65% | -0.21% | 1.37% | 0.13% | |
| CAD | -0.41% | -0.65% | -0.37% | 0.31% | -0.58% | 1.03% | -0.23% | |
| AUD | -0.73% | -0.95% | -0.65% | -0.30% | -0.87% | 0.73% | -0.53% | |
| JPY | 0.16% | -0.08% | 0.27% | 0.57% | 0.89% | 1.59% | 0.34% | |
| NZD | -1.46% | -1.69% | -1.39% | -1.03% | -0.73% | -1.60% | -1.26% | |
| CHF | -0.19% | -0.42% | -0.13% | 0.23% | 0.53% | -0.35% | 1.25% |
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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