USD/INR gains as FIIs continue to stay away from Indian stock market
- The Indian Rupee weakens against the US Dollar, with the USD/INR rising to near 88.90.
- Receding Fed dovish speculation and improving US-China trade relations have strengthened the US Dollar.
- FIIs sold shares worth Rs. 5,617.75 crores in the last two trading days.
The Indian Rupee (INR) trades lower against the US Dollar (USD) after a flat opening on Friday. The USD/INR pair rises to near 88.90 as the US Dollar (USD) trades broadly firm due to receding Federal Reserve (Fed) dovish bets, and improving trade relations between the United States (US) and China.
At the press time, the US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, clings to gains near an almost three-month high around 99.70 posted on Thursday.
The CME FedWatch tool showed that the probability of the Fed cutting interest rates by 25 basis points (bps) to 3.50%-3.75% in the December meeting has eased to 72.8% from 91.1% seen a week ago. Fed dovish bets have cooled down after the monetary policy announcement on Wednesday, in which Chairman Jerome Powell argued against reducing interest rates in the December meeting after reducing them by 25 bps to 3.75%-4.00%. “Another cut in December is far from assured,” Powell said in the press conference.
For more cues on the interest rate outlook, investors await speeches from Federal Open Market Committee (FOMC) members: Atlanta President Raphael Bostic and Cleveland President Beth Hammack, scheduled during the North American session. Investors would also like to know the current status of the labor market amid the absence of economic data releases due to the ongoing federal shutdown.
Daily digest market movers: FIIs start paring stake in Indian equity market
- Signs of improving trade relations between the US and China are also providing support to the USD/INR pair. On Thursday, US President Donald Trump stated that the “meeting with Chinese leader Xi Jinping was amazing”. Trump added, “On a scale of 1 to 10, the meeting with Xi was a 12”.
- Trump further added that tariffs on China will be 47%, down from 57% as Beijing is ready to cooperate on fentanyl issues, there will be no roadblocks on rare earth exports to Washington, and Beijing will begin purchasing soybeans soon.
- In response, the Chinese Commerce Ministry has stated that Beijing will suspend export control measures announced on October 9 for a year and will expand agricultural trade with Washington.
- Later on Thursday, US Treasury Secretary Scott Bessent stated in an interview on Fox Business Network that both Washington and Beijing would sign the trade deal soon. "The Kuala Lumpur agreement was finished in the middle of the night last night, so I expect we will exchange signatures possibly as soon as next week," Bessent said, Reuters reported.
- In Asia, the Indian Rupee trades lower against its peers on renewed selling by overseas investors in the Indian stock market. This week, investors turned slightly optimistic on Foreign Institutional Investors (FIIs) returning to the Indian equity market after they bought shares worth Rs. 10,339.80 crores on Tuesday. However, the optimism has started fizzling out as FIIs have pared stake worth Rs. 5,617.75 crores cumulatively on Wednesday and Thursday.
- Going forward, more development on trade talks between the US and India will be a key trigger for the next move in the Indian Rupee. So far top negotiators from both nations have expressed confidence that they will reach a deal soon. However, no announcement has been made yet.
- Meanwhile, Indian equity markets are going through some volatility as the Q2 earnings season has picked up a little pace. So far, earnings from IT companies have remained tepid due to tariff uncertainty in the US economy.
The table below shows the percentage change of Indian Rupee (INR) against listed major currencies today. Indian Rupee was the weakest against the Japanese Yen.
| USD | EUR | GBP | JPY | CAD | AUD | INR | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | -0.06% | 0.00% | -0.09% | 0.06% | 0.20% | 0.09% | -0.02% | |
| EUR | 0.06% | 0.05% | -0.02% | 0.11% | 0.27% | 0.16% | 0.04% | |
| GBP | -0.00% | -0.05% | -0.10% | 0.06% | 0.21% | 0.11% | -0.03% | |
| JPY | 0.09% | 0.02% | 0.10% | 0.13% | 0.28% | 0.21% | 0.04% | |
| CAD | -0.06% | -0.11% | -0.06% | -0.13% | 0.14% | 0.06% | -0.08% | |
| AUD | -0.20% | -0.27% | -0.21% | -0.28% | -0.14% | -0.09% | -0.22% | |
| INR | -0.09% | -0.16% | -0.11% | -0.21% | -0.06% | 0.09% | -0.14% | |
| CHF | 0.02% | -0.04% | 0.03% | -0.04% | 0.08% | 0.22% | 0.14% |
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 Indian Rupee from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent INR (base)/USD (quote).
Technical Analysis: USD/INR stays above 20-day EMA
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USD/INR rises to near 88.90 on Friday. The pair returns and strives to hold above the 20-day Exponential Moving Average (EMA), which trades around 88.49. This suggests that the near-term trend has become bullish.
The 14-day Relative Strength Index (RSI) strives to break above 60.00. A fresh bullish momentum would emerge if the RSI sustains above that level.
Looking down, the August 21 low of 87.07 will act as key support for the pair. On the upside, the all-time high of 89.12 will be a key barrier.
Indian economy FAQs
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.
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.
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.
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
Sagar Dua
FXStreet
Sagar Dua is associated with the financial markets from his college days. Along with pursuing post-graduation in Commerce in 2014, he started his markets training with chart analysis.
