USD/INR attracts some buyers, investors await US GDP data

  • Indian Rupee trades softer on the renewed USD demand. 
  • India is expected to achieve real GDP growth of at least 6–6.5% in the long term, according to a Deutsche Bank report. 
  • The US Gross Domestic Product (GDP) for the fourth quarter (Q4) will be released later on Wednesday. 

Indian Rupee (INR) edges lower on Wednesday amid the modest recovery of the US Dollar (USD). The pair is likely to remain in a tight range due to USD inflows from importers and the potential intervention by the Reserve Bank of India (RBI). 

According to the Deutsche Bank report, the Indian economy has shown remarkable resilience, with growth momentum holding up significantly better than expected despite the Russia-Ukraine war last year. Furthermore, India is anticipated to achieve real GDP growth of at least 6–6.5% over the long term. This is considerably higher than in similar developing nations. Investors will take more cues from the Indian GDP annual growth numbers on Thursday, followed by the S&P Global Manufacturing PMI for February on Friday. If the reports show stronger-than-expected results, this might boost the INR and act as a headwind for the USD/INR pair. 

Investors will monitor the US Gross Domestic Product (GDP) for the fourth quarter (Q4), due on Wednesday, along with preliminary Goods Trade Balance, Fed’s Bostic, Collins, and Williams speeches. The attention will shift to the Core Personal Consumption Expenditures Price Index (PCE), the Fed's preferred inflation gauge, due on Thursday.

Daily Digest Market Movers: Indian Rupee remains vulnerable to geopolitical risks and uncertainties

  • Traders have speculated that the Reserve Bank of India (RBI) may have been buying Dollars in recent sessions.
  • India’s real GDP growth for the December quarter is forecast to grow 7% year-on-year, higher than previously anticipated, according to Deutsche Bank. 
  • Indian Rupee is likely to have additional support this week from MSCI-rebalancing inflows, which are estimated to drive passive inflows of $1.2 billion into Indian equities, according to Nuvama Alternative & Quantitative Research.
  • Foreign investors have net purchased over $2.4 billion of Indian bonds in February so far.
  • Fed Governor Bowman said inflation will continue to decline with interest rates held at current levels, but it is not yet time to start lowering rates.
  • Kansas City Fed President Schmid stated that there is no need to preemptively adjust the stance of monetary policy as inflation is running above target, labor markets are tight, and demand is showing considerable momentum.
  • Financial markets have priced in 80 basis points (bps) of rate cuts this year, lower than 175 bps priced in around mid-January.

Most recent article: Stock Market Today: Nifty and Sensex drop over 0.50% amid broad-based selling

Technical Analysis: Indian Rupee oscillates in a longer-term trading band of 82.70–83.20

Indian Rupee trades weaker on the day. USD/INR remains confined within a multi-month-old descending trend channel of 82.70–83.20 since December 8, 2023. 

In the near term, the negative outlook of USD/INR remains intact as the pair is below the key 100-day Exponential Moving Average (EMA) on the daily timeframe. Additionally, the 14-day Relative Strength Index (RSI) lies in bearish territory below the 50.0 midline, indicating that a further decline looks favorable. 

In the case of a bearish environment, the lower limit of the descending trend channel at 82.70 acts as an initial support level for USD/INR. A breach of this level could put a move to a low of August 23 at 82.45 on the table, followed by a low of June 1 at 82.25.

On the upside, the crucial resistance level for the pair is seen at the confluence of a psychological round mark and the 100-day EMA at 83.00. A break above the mentioned level could attract bullish momentum that may take the pair to the upper boundary of the descending trend channel at 83.20, en route to a high of January 2 at 83.35, and finally at 84.00. 

US Dollar price in the last 7 days

The table below shows the percentage change of US Dollar (USD) against listed major currencies in the last 7 days. US Dollar was the weakest against the Pound Sterling.

USD   -0.12% -0.23% 0.24% 0.70% 0.48% 1.07% -0.14%
EUR 0.11%   -0.12% 0.35% 0.79% 0.58% 1.18% -0.03%
GBP 0.23% 0.12%   0.48% 0.92% 0.72% 1.30% 0.10%
CAD -0.24% -0.36% -0.48%   0.45% 0.23% 0.82% -0.38%
AUD -0.69% -0.82% -0.93% -0.46%   -0.23% 0.38% -0.84%
JPY -0.49% -0.59% -0.72% -0.23% 0.24%   0.57% -0.61%
NZD -1.08% -1.20% -1.32% -0.84% -0.39% -0.59%   -1.22%
CHF 0.14% 0.02% -0.09% 0.38% 0.83% 0.61% 1.21%  

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 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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