USD/INR gathers strength on the first trading day of 2024
- Indian Rupee loses traction on the modest rebound of the US Dollar.
- Finance Ministry said India's economy is expected to surpass the government's growth estimate of 6.5% in FY24.
- The US labor data, including US Nonfarm Payrolls (NFP), will be in the spotlight this week.
Indian Rupee (INR) trades on a soft note on the first trading day of 2024 on Tuesday. India’s Finance Ministry said in its half-yearly economic review report on Friday that India's economy is projected to surpass the government's growth estimate of 6.5% in FY24. The ministry further stated that the growth in consumption demand is also expected to continue. Additionally, the relatively steady Indian Rupee with substantial foreign currency reserves encourages confidence in the country's external sector.
The INR is likely to be influenced by the US Dollar (USD) dynamic this week while traders keep an eye on the US labor data, including US Nonfarm Payrolls (NFP), Unemployment Rate, and Average Hourly Earnings, due later on Friday.
Daily Digest Market Movers: Indian Rupee remains strong amid global factors
- The Indian Rupee weakened on Tuesday amid a sluggish risk appetite ahead of major US economic data coming this week.
- The Reserve Bank of India (RBI) has constantly intervened in foreign currency markets on both sides in recent weeks, keeping the USD/INR pair in a narrow range, according to traders.
- The International Monetary Fund (IMF) stated in its annual report that India had intervened in selling dollars more than it deemed necessary.
- Indian Finance Ministry mentioned that the real GDP grew by 7.7% in H1 of FY24, following a 7.6% growth in Q2.
- India's current account deficit narrowed to $8.3 billion in the second quarter of 2023–24.
- The US Chicago Purchasing Managers' Index (PMI) arrived at 46.9 in December from the previous reading of 55.8, weaker than the expectation of 51.0.
- According to the CME Group's FedWatch tool, the markets are pricing in 88% odds of rate cuts in March.
Technical Analysis: Indian Rupee extends the longer-term range theme
Indian Rupee trades weaker on the day. The USD/INR pair has traded within a multi-month-old trading band of 82.80–83.40. According to the daily chart, buyers look to retain control as the pair holds above the key 100-period Exponential Moving Average (EMA). Furthermore, the 14-day Relative Strength Index (RSI) bounces back above the 50.0 midpoint, suggesting that further upside looks favorable.
The first support level will emerge at 83.00. A break below 83.00 will see a drop to the confluence of the lower limit of the trading range and a low of September 12 at 82.80. Further south, the next contention is located near a low of August 11 at 82.60. On the other hand, the immediate resistance level is near the upper boundary of the trading range at 83.40. The additional upside filter to watch is the 2023 high of 83.47, followed by the 84.00 psychological mark.
(This story was corrected on January 2 at 08:18 GMT to say that 83.47 is the USD/INR 2023's high, not year-to-date high.)
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 | 0.05% | -0.04% | 0.01% | -0.32% | 0.18% | 0.00% | 0.24% | |
| EUR | -0.04% | -0.08% | -0.04% | -0.37% | 0.13% | -0.04% | 0.19% | |
| GBP | 0.04% | 0.08% | 0.04% | -0.31% | 0.23% | 0.03% | 0.25% | |
| CAD | -0.01% | 0.02% | -0.07% | -0.34% | 0.16% | -0.02% | 0.22% | |
| AUD | 0.32% | 0.37% | 0.29% | 0.34% | 0.50% | 0.32% | 0.55% | |
| JPY | -0.19% | -0.12% | -0.22% | -0.14% | -0.50% | -0.18% | 0.05% | |
| NZD | -0.01% | 0.04% | -0.03% | 0.00% | -0.35% | 0.19% | 0.16% | |
| CHF | -0.24% | -0.16% | -0.24% | -0.19% | -0.56% | -0.02% | -0.21% |
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.
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.
