USD/INR trades with mild gains amid geopolitical risks

The Indian Rupee edges lower in Tuesday’s early European trading hours.
Outflows from Indian equities, higher oil prices and a stronger US Dollar undermine the INR.
Traders await Fedspeak ahead of the RBI rate decision.

Lallalit Srijandorn FXStreet

The Indian Rupee (INR) weakens on Tuesday amid the selling pressure from foreign funds and weak tone in the domestic markets. Additionally, the rise in crude oil prices and escalating geopolitical tensions between Israel and Iran contribute to the INR’s downside.

Traders will keep an eye on the speeches from the US Federal Reserve’s (Fed) Raphael Bostic, Phillip Jefferson and Susan Collins on Tuesday. Any dovish comments from the Fed officials could weigh on the Greenback and cap the downside for the local currency. On Wednesday, the Reserve Bank of India (RBI) interest rate decision will take center stage.

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

"We expect the rupee to trade with a negative bias on selling pressure from foreign funds and a weak tone in the domestic markets. Escalating tensions between Israel and Iran may further pressurize the rupee," said Anuj Choudhary, Research Analyst at Sharekhan by BNP Paribas.
India's foreign exchange reserves rose $12.588 billion to a new all-time high of $704.885 billion for the week ended September 27, the Reserve Bank of India said on Friday.
India's Trade Minister Piyush Goyal said on Monday it is time for the INR to appreciate on the back of inflows in debt and equity markets.
Federal Reserve Bank of St. Louis President Alberto Musalem stated on Monday that he supports more interest rate cuts as the economy moves forward on a healthy path. However, he emphasized that it is appropriate for the Fed to be cautious and not overdo easing monetary policy, per Reuters.
Minneapolis Fed President Neel Kashkari said on Monday that the Fed welcomed the strong September jobs report, which indicates the firm economy. Kashkari added that the balance of risks shifted from "high inflation towards maybe higher unemployment.

Technical Analysis: USD/INR’s constructive outlook prevails

The Indian Rupee trades weaker on the day. The positive picture of the USD/INR pair remains intact, with the pair holding above the key 100-day Exponential Moving Average (EMA) on the daily timeframe. The further upside looks favorable as the 14-day Relative Strength Index (RSI) is located above the midline near 60.70.

The upper boundary of the rectangle and psychological mark near 84.00 act as a key resistance level for USD/INR. Any follow-through buying above this level could attract some buyers to the all-time high of 84.15, followed by 84.50.

On the downside, the first downside target to watch is 83.80, the low of October 1. Sustained bearish momentum could pave the way to the 100-day EMA at 83.66. The next contention level is seen at 83.00, representing the round mark and the low of May 24.

RBI FAQs

What is the role of the Reserve Bank of India?

The role of the Reserve Bank of India (RBI), in its own words, is '..to maintain price stability while keeping in mind the objective of growth.” This involves maintaining the inflation rate at a stable 4% level primarily using the tool of interest rates. The RBI also maintains the exchange rate at a level that will not cause excess volatility and problems for exporters and importers, since India’s economy is heavily reliant on foreign trade, especially Oil.

How do the decisions of the Reserve Bank of India affect the Rupee?

The RBI formally meets at six bi-monthly meetings a year to discuss its monetary policy and, if necessary, adjust interest rates. When inflation is too high (above its 4% target), the RBI will normally raise interest rates to deter borrowing and spending, which can support the Rupee (INR). If inflation falls too far below target, the RBI might cut rates to encourage more lending, which can be negative for INR.

Does the Reserve Bank of India directly intervene in FX markets?

Due to the importance of trade to the economy, the Reserve Bank of India (RBI) actively intervenes in FX markets to maintain the exchange rate within a limited range. It does this to ensure Indian importers and exporters are not exposed to unnecessary currency risk during periods of FX volatility. The RBI buys and sells Rupees in the spot market at key levels, and uses derivatives to hedge its positions.

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.

GBP/USD resumes the downtrend, revisits 1.3230

GBP/USD remains under pressure below 1.3250 on Tuesday, giving back part of the previous day's advance. Meanwhile, Cable’s weakness follows a generalised rebound in the Greenback, particularly triggered by the sharp rally in USD/JPY.

EUR/USD stays offered, flirts with 1.1400

EUR/USD remains under selling pressure on Tuesday, trading around 1.1400 as a firmer US Dollar weighs on the pair. Softer-than-expected German inflation data for June adds to the Euro's headwinds, putting the pair on track to snap a three-day winning streak.

Gold advances modestly above $4,000

Following multi-month lows near $3,950, Gold now manages to regain some composure and reclaim the area beyond the key $4,000 yardstick per troy ounce on Wednesday. Still, any meaningful recovery appears limited as a broadly firmer US Dollar and rising US Treasury yields weigh on the yellow metal.

Ripple defends critical support, Stellar extends recovery

Ripple (XRP) trades around the key $1.00 psychological level, consolidating as the token awaits its next directional catalyst. Stellar (XLM) extends its recovery above $0.178 after posting modest gains at the start of this week.

Why a hawkish Bank of Japan could trigger the next Bitcoin sell-off

The Japanese Yen hits a 40-year low of 162.00 against the US Dollar, raising concerns about intervention or additional rate hikes by the Bank of Japan. BoJ may sell US Treasuries to buy back Yen, potentially pushing US bond yields higher and making Bitcoin less attractive to investors.

Kevin Warsh isn't expected to say much in Sintra: That's exactly why markets will listen

Financial markets could find an important catalyst in the enchanting, fairytale-like landscape of Sintra this week. The ECB Forum will, as it does every year, gather the crème de la crème of central banks. The new boss at the Fed, who has clearly said that the Fed should stop explaining everything, will need to talk – and traders should listen.