• Indian Rupee weakens amid USD demand.
  • USD/INR is likely to remain confined in a narrow range due to the USD inflows and the potential intervention from the RBI. 
  • Investors await the US Gross Domestic Product (GDP) for Q4, due on Wednesday. 

Indian Rupee (INR) trades in negative territory on Tuesday amid dip-buying demand in the US Dollar (USD). The pair is expected to remain in a narrow trading range due to USD inflows from importers and the potential intervention by the Reserve Bank of India (RBI). Some analysts said the Indian central bank bought the Dollar throughout last week to prevent the local currency from appreciating much amid continuing inflows.

INR is likely to have additional support from MSCI-rebalancing inflows. According to Nuvama Alternative & Quantitative Research, India is expected to see $1.2 billion in passive inflows into equities after MSCI's quarterly review, which begins on February 29.

Later this week, investors will monitor the remarks from several Federal Reserve officials, along with the release of US Gross Domestic Product (GDP) for Q4 on Wednesday and the Personal Consumption Expenditures Price Index (PCE), due on Thursday. On the Indian docket, the GDP annual growth numbers and Federal Fiscal Deficit will be released on Thursday. The Indian S&P Global Manufacturing PMI for February will be published on Friday. 

Daily Digest Market Movers: Indian Rupee remains vulnerable to multiple headwinds and uncertainties

  • India’s real GDP growth number for October-December 2023 is forecast to grow 7.0% YoY, according to Deutsche Bank. 
  • The RBI has estimated Retail Inflation for FY25 at 4.5%, with Q1 at 5.0%; Q2 at 4.0%; Q3 at 4.6%; and Q4 at 4.7%. 
  • Kansas City Fed President Jeffrey Schmid said the central bank is not out of the woods yet on too high inflation and there is no need to preemptively cut interest rates.
  • New York Fed President John Williams warned last week about the possibility of early rate cuts, adding that the central bank is on track to lower borrowing costs later this year.
  • Fed Governor Christopher Waller said the central bank should delay rate cuts by at least a few more months to see more evidence of inflation data.

Most recent article: Stock Market Today: Nifty and Sensex open lower on Tuesday

Technical Analysis: Indian Rupee remains confined within a long-term trading range

Indian Rupee trades on a softer note on the day. USD/INR has remained in a multi-month-old descending trend channel of 82.70–83.20 since December 8, 2023. 

In the short term, the bearish bias of USD/INR prevails as the pair holds below the crucial 100-day Exponential Moving Average (EMA) on the daily timeframe. The downward momentum is also supported by the 14-day Relative Strength Index (RSI), which lies below the 50.0 midline, suggesting that further decline cannot be ruled out. 

The short-term technical support zone is seen at the lower limit of the descending trend channel at 82.70. Any follow-through selling below 82.70, the pair could revisit the next contention level at a low of August 23 at 82.45 and a low of June 1 at 82.25.

On the other hand, the first upside barrier is located at the confluence of a psychological round mark and the 100-day EMA at 83.00. A decisive break above this level may draw in more buyers and extend its intraday upswing 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 today

The table below shows the percentage change of US Dollar (USD) against listed major currencies today. US Dollar was the strongest against the Pound Sterling.

USD   0.00% 0.05% -0.02% -0.12% -0.02% 0.02% 0.01%
EUR 0.00%   0.04% -0.02% -0.12% -0.01% 0.00% 0.01%
GBP -0.04% -0.04%   -0.07% -0.17% -0.06% -0.05% -0.04%
CAD 0.03% 0.02% 0.06%   -0.11% 0.00% 0.04% 0.03%
AUD 0.12% 0.12% 0.16% 0.08%   0.10% 0.11% 0.11%
JPY 0.02% 0.03% 0.07% -0.02% -0.08%   0.03% 0.02%
NZD -0.01% 0.01% 0.03% -0.03% -0.13% -0.03%   0.02%
CHF 0.01% 0.01% 0.05% -0.01% -0.11% 0.00% 0.01%  

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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