USD/INR loses its recovery momentum, eyes on Fedspeak, RBI rate decision

  • Indian Rupee trades on a stronger note amid US Dollar weakness. 
  • OECD revised India’s growth outlook higher for 2024–25 (FY25) to 6.2% from the 6.1% forecast earlier in its November outlook.
  • Investors will tune in to the Fed speeches and the Reserve Bank of India (RBI) rate decision this week.

Indian Rupee (INR) snaps a three-day losing streak on Wednesday on the corrective move in the US Dollar (USD) and a downtick in US Treasury yields. On Monday, the Organization for Economic Co-operation and Development (OECD) raised India’s growth outlook for 2024–25 (FY25) to 6.2% from the 6.1% estimated earlier in its November outlook. Nonetheless, OECD warned that the geopolitical tensions in the Middle East posed a threat to the global economy as disruptions in Red Sea shipping may boost consumer prices.

In the absence of top-tier economic data releases from the US, traders will take more cues about the interest rate path from Fedspeak throughout the week. The Reserve Bank of India (RBI) has scheduled the monetary policy meeting for Tuesday to Thursday. On Thursday, RBI Governor Shaktikanta Das will announce the MPC decision at 4.30 GMT. 

Daily Digest Market Movers: Indian Rupee stays vulnerable ahead of RBI monetary policy meeting

  • Foreign investors have purchased $936 million in Indian bonds in February, in addition to $275 million in inflows into local equities.
  • The Indian rupee has risen 0.2% versus the US Dollar since the beginning of the year, as decreasing expectations for an early rate cut by the Fed bolstered the USD. 
  • The RBI is anticipated to keep the repo rate steady at 6.5% in the policy decision, which will be announced on Thursday. 
  • Fed Bank of Cleveland President Loretta Mester said that she might open the door to lower interest rates later this year if the economy evolves as expected. 
  • Minneapolis Fed President Neel Kashkari stated that the central bank has not yet reached the goal on year-over-year inflation data, but 3-month and 6-month data is basically there.
  • Traders have now priced in 15% odds of rate cuts in the March meeting, according to the CME's FedWatch Tool. 

Technical Analysis: Indian Rupee remains confined in longer-term range of 82.70–83.20

Indian Rupee edges higher on the day. The USD/INR pair has traded within a two-month-old descending trend channel of 82.70–83.20. 

In the near term, USD/INR keeps the bearish vibe unchanged as the pair remains capped below the key 100-period Exponential Moving Average (EMA) on the daily chart. Furthermore, the 14-day Relative Strength Index (RSI) lies below the 50.0 midline, hinting that further decline cannot be ruled out. 

If the bear sustains its momentum, the lower limit of the descending trend channel at 82.70 will attract some sellers. The next potential support level will emerge at a low of August 23 at 82.45, en route to a low of June 1 at 82.25. 

On the bright side, the crucial resistance level for USD/INR is located at the confluence of the upper boundary of the descending trend channel and a high of January 18 at 83.20. Any follow-through buying will see a rally to the next upside targets near a high of January 2 at 83.35, and then 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 weakest against the New Zealand Dollar.

USD   -0.06% 0.00% -0.02% 0.00% 0.15% -0.09% -0.01%
EUR 0.03%   0.06% 0.03% 0.07% 0.20% -0.04% 0.03%
GBP 0.00% -0.06%   -0.02% 0.01% 0.15% -0.09% 0.00%
CAD 0.03% -0.03% 0.02%   0.03% 0.17% -0.07% -0.01%
AUD -0.01% -0.05% 0.00% -0.02%   0.14% -0.09% 0.00%
JPY -0.15% -0.18% -0.13% -0.16% -0.14%   -0.21% -0.16%
NZD 0.08% 0.02% 0.09% 0.07% 0.09% 0.24%   0.09%
CHF 0.01% -0.06% -0.01% -0.03% 0.03% 0.15% -0.09%  

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 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.

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