USD/INR climbs on US Dollar demand, traders await Fed’s Powell speech

Indian Rupee trades in negative territory in Monday’s early European session.
The USD month-end flows and potential RBI intervention underpin the pair.
Investors will monitor the Fed's Bowman speech on Monday.

Lallalit Srijandorn FXStreet

The Indian Rupee (INR) softens on Monday, pressured by month-end US Dollar (USD) demand from importers and likely interventions by the Reserve Bank of India (RBI). However, strong inflows and lower crude oil prices might help limit the INR’s losses.

Investors will focus on the speeches from Fed Chair Jerome Powell and Governor Michelle Bowman on Monday, which might offer some insight and outlook on the US interest rate. Also, the Chicago Purchasing Managers' Index (PMI) and Dallas Fed Manufacturing Business Index will be released. On the Indian docket, the August Federal Fiscal Deficit is due later in the day

Daily Digest Market Movers: Indian Rupee weakens as USD demand weighs heavily

The Indian rupee has remained largely stable against the USD in the current calendar year (CY 2024), depreciating by just 0.59% so far.
Chief Economic Advisor (CEA) V Anantha Nageswaran said on Friday that the Indian economy is estimated to grow at a rate of 6.5-7% in the current financial year on a steady-state basis.
The Personal Consumption Expenditures (PCE) Price Index rose by 2.2% year-over-year in August, compared to 2.5% in July, the US Bureau of Economic Analysis (BEA) showed on Friday. This figure was softer than the estimates of 2.3%.
The core PCE, which excludes the more volatile food and energy prices, climbed 2.7% YoY in August, compared to the previous reading of 2.6%, in line with the consensus of 2.7%. On a monthly basis, the core PCE Price Index increased by 0.1% in the same report period versus 0.2% prior.
University of Michigan's Consumer Sentiment Index rose to 70.1 in September from 66.0 in August, better than the estimates of 69.3.
Interest rate futures contracts have priced in a nearly 54% chance of a half-point cut in November, versus a 46% possibility of a quarter-point cut, according to the CME FedWatch Tool.

Technical Analysis: USD/INR tests rectangle pullback, success could see upward resumption

The Indian Rupee trades softer on the day. According to the daily chart, the constructive bias of the USD/INR pair persists as the price holds above the key 100-day Exponential Moving Average (EMA). However, further downside looks favorable as the RSI is located below the midline near 46.60.

The support-turned-resistance level at 83.75 acts as an immediate resistance level for USD/INR. Further north, the next upside barrier emerges at the 84.00 psychological mark.

The potential support level is located at the 100-period EMA at 83.62. Any follow-through selling below this level will see a drop to 83.00, representing the psychological level and the low of May 24.

Indian economy FAQs

How does the Indian economy impact the Indian Rupee?

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.

What is the impact of Oil prices on the Rupee?

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.

How does inflation in India impact 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.

How does seasonal US Dollar demand from importers and banks impact 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.

Author

Lallalit Srijandorn

FXStreet

Lallalit Srijandorn is a Parisian at heart. She has lived in France since 2019 and now becomes a digital entrepreneur based in Paris and Bangkok.

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