USD/INR recovers ahead of US PCE data

Indian Rupee trades on a negative note on the renewed USD demand on Friday.
The rebound in crude oil prices and the Fed's hawkish stance weigh on the INR.
The final reading of the US March Personal Consumption Expenditures Price Index (PCE) will be the highlight on Friday.

Indian Rupee (INR) loses traction on Friday, supported by renewed US Dollar (USD) demand. The recovery in crude oil prices and foreign capital outflows weigh on the INR. Additionally, a hawkish repricing of US Federal Reserve (Fed) rate cut expectations amid elevated inflation will continue to boost the USD and cap the pair’s downside. However, the softer USD against key rivals overseas and easing geopolitical tensions in the Middle East might support the local currency.

Daily Digest Market Movers: Indian Rupee remains weak amid global challenges

The Indian Rupee was the least volatile major currency among its emerging market peers and a few advanced economies in the financial year 2023–24, according to the Monthly Economic Review report of the Department of Economic Affairs under the Ministry of Finance.
The report added that India’s foreign exchange reserves reached an all-time high in March 2024, sufficient to cover 11 months of projected imports and more than 100% of total external debt.
The first estimate of US Gross Domestic Product (GDP) grew by 1.6% on an annualized basis in the first quarter (Q1) of 2024, compared to a 3.4% growth in Q4 2023, below the market consensus of 2.5%.
The US Personal Consumption Expenditures Prices (PCE) rose at an annualized rate of 3.4% in Q1, nearly double the 1.8% pace recorded in Q4 2023.
HSBC analysts expect the Fed to leave its policy rate unchanged in May and said that economic growth and core inflation data in the coming months will likely impact policy in June and beyond.

Technical analysis: USD/INR maintains a constructive outlook in the longer term

The Indian Rupee trades softer on the day. The positive outlook of USD/INR remains unchanged on the daily chart as the pair is above the key 100-day Exponential Moving Average (EMA). However, the 14-day Relative Strength Index (RSI) holds in bearish territory around 48.00, suggesting the potential decline cannot be ruled out.

The first downside target of USD/INR will emerge near the confluence of the 100-day EMA and a low of April 10 in the 83.10–83.15 region. A decisive break below this level will see a drop to a low of January 15 at 82.78, followed by a low of March 16 at 82.65. On the upside, the immediate resistance level is seen near a high of April 15 at 83.50. Further north, the next hurdle is located near an all-time high of 83.72, en route to the 84.00 psychological level.

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 Japanese Yen.

	USD	EUR	GBP	CAD	AUD	JPY	NZD	CHF
USD		-0.08%	-0.02%	-0.16%	-0.40%	0.40%	-0.17%	0.00%
EUR	0.07%		0.04%	-0.07%	-0.33%	0.47%	-0.09%	0.08%
GBP	0.03%	-0.05%		-0.12%	-0.39%	0.43%	-0.16%	0.02%
CAD	0.15%	0.07%	0.12%		-0.27%	0.55%	-0.04%	0.15%
AUD	0.39%	0.33%	0.39%	0.27%		0.81%	0.23%	0.41%
JPY	-0.40%	-0.48%	-0.43%	-0.54%	-0.80%		-0.58%	-0.39%
NZD	0.17%	0.11%	0.16%	0.04%	-0.23%	0.59%		0.18%
CHF	0.00%	-0.08%	-0.02%	-0.14%	-0.39%	0.41%	-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

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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