USD/INR gathers strength ahead of US ADP, Services PMI data

  • Indian Rupee struggles to gain ground amid the higher oil prices. 
  • The rising Middle East geopolitical tensions might weigh on the INR. 
  • Investors will focus on the US ADP Employment Change and the ISM Services PMI, due on Wednesday.

Indian Rupee (INR) loses momentum on Wednesday. The rise in crude oil prices to nearly a five-month high has exerted some selling pressure on the INR, as India is the world's second-biggest oil importer. The escalating geopolitical tensions in the Middle East and Russia-Ukraine might further boost crude oil prices and drag the INR lower. However, the robust Indian economic data and optimistic outlook for the Indian economy might limit the INR’s downside. 

The final reading of Indian HSBC Services PMI for March will be due on Thursday. On Friday, Reserve Bank of India (RBI) Governor Shaktikanta Das will unveil the first monetary policy of the financial year 2024–25. According to a majority of analysts, the Indian central bank is likely to keep its key repo rate unchanged at 6.50% at its April meeting and maintain its stance of withdrawal of accommodation. On the US docket, the ADP Employment Change and the ISM Services PMI will be published on Wednesday. On Friday, the Nonfarm Payrolls (NFP) will be released.

Daily digest market movers: Indian Rupee remains vulnerable amid higher crude oil prices and global factors

  • Oil prices edge higher to their highest level in five months, propelled by concerns that rising tensions in the Middle East could crimp supply.
  • India’s HSBC Manufacturing PMI rose to 59.1 in March from the flash estimate of 56.9, below the market consensus of 59.2. 
  • RBI would allow exchanges to offer forex derivative contracts involving the INR only for contracted exposure or hedging, compared to the current allowance of up to $100 million without any explicit underlying exposure. The rule will come into effect on April 5. 
  • The RBI's MPC decided to keep the benchmark interest rate unchanged at 6.5% for the sixth straight meeting at its last meeting in February, citing inflationary concerns, and decided to remain focused on the withdrawal of accommodation.
  • Cleveland Fed President Loretta Mester said on Tuesday that she expects rate cuts this year but ruled out the next policy meeting in May. 
  • San Francisco Fed President Mary Daly stated she thinks three rate cuts in 2024 seem "reasonable,"  but she needs more convincing evidence to confirm it. 
  • According to the CME FedWatch Tool, investors are now pricing in about a 65% odds of a rate cut by June, down from about 70% after the Fed's March meeting.
  • The US February JOLTS Job Openings climbed to 8.756M in February from a downwardly revised 8.748M in January, better than the market estimation.

Technical analysis: USD/INR keeps the bullish vibe in the longer term

Indian Rupee trades on a weaker note on the day. The bullish outlook of USD/INR remains unchanged since the pair has risen above a nearly four-month-old descending trend channel since last week. 

In the near term, USD/INR is above the key 100-day Exponential Moving Average (EMA) on the daily timeframe. The 14-day Relative Strength Index hovers around 64.15 in the bullish territory, indicating that further upside looks favorable for the pair. 

Any follow-through buying above a high of November 10, 2023, at 83.49 may extend its upswing to an all-time high of 83.70. The additional upside filter to watch is the 84.00 psychological level. In case of sustained trading below the support level near a high of March 21 at 83.20, the pair could fall back to 83.00 (round mark, the 100-day EMA), followed by a low of March 14 at 82.80.

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   -0.03% 0.03% 0.10% 0.01% 0.07% -0.03% 0.12%
EUR 0.03%   0.07% 0.13% 0.06% 0.10% 0.02% 0.17%
GBP -0.04% -0.06%   0.06% -0.02% 0.02% -0.05% 0.10%
CAD -0.10% -0.13% -0.05%   -0.08% -0.03% -0.12% 0.03%
AUD -0.03% -0.05% 0.01% 0.07%   0.05% -0.04% 0.10%
JPY -0.07% -0.10% -0.06% 0.02% -0.06%   -0.09% 0.07%
NZD 0.02% -0.02% 0.05% 0.11% 0.03% 0.09%   0.15%
CHF -0.15% -0.17% -0.10% -0.04% -0.12% -0.08% -0.16%  

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

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.

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.

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.

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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