USD/INR ticks down while firm Oil prices, foreign outflows continue to batter Indian Rupee
- The Indian Rupee ticks higher after sliding to near 86.20 against the US Dollar.
- Tehran threatens to close the Strait of Hormuz to disrupt the Oil supply chain.
- Investors expect the Fed to leave interest rates steady on Wednesday.
The Indian Rupee (INR) surrenders early losses after posting a fresh two-month low near 86.20 against the US Dollar (USD) and ticks up to near 86.00 during European trading hours on Monday. The USD/INR pair faces pressure as the US Dollar (USD) falls back, with the US Dollar Index (DXY) retreating to near 98.00 from the intraday high of 98.36.
However, the outlook of the pair remains firm as the conflict between Israel and Iran is expected to keep supporting safe-haven assets, such as the US Dollar (USD).
The lack of efforts towards ending the conflict by both nations has forced investors to shift to the safe-haven fleet. Israeli Defence Minister Israel Katz warned that “Tehran will burn” if Iran continues firing missiles at Israel, Euronews reported.
Meanwhile, officials from Iran have threatened to shut down the Strait of Hormuz, from which around one-fifth of the world's oil is transported to global markets, a move that could potentially boost oil prices. “Closing the waterway is under consideration and Iran will make the best decision with determination,” Commander in the Islamic Revolutionary Guard Corps (IRGC) Sardar Esmail Kowsari said in an interview over the weekend, Arab News reported.
The scenario of rising Oil prices is unfavorable for the Indian Rupee, given that India is one of the leading Oil-importing nations in the world.
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 Australian Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | INR | |
|---|---|---|---|---|---|---|---|---|
| USD | -0.35% | -0.16% | -0.25% | -0.08% | -0.38% | -0.23% | -0.10% | |
| EUR | 0.35% | 0.07% | 0.10% | 0.27% | 0.09% | 0.13% | 0.18% | |
| GBP | 0.16% | -0.07% | 0.06% | 0.20% | 0.02% | 0.06% | 0.18% | |
| JPY | 0.25% | -0.10% | -0.06% | 0.16% | -0.44% | -0.35% | 0.04% | |
| CAD | 0.08% | -0.27% | -0.20% | -0.16% | -0.23% | -0.14% | -0.10% | |
| AUD | 0.38% | -0.09% | -0.02% | 0.44% | 0.23% | 0.04% | 0.08% | |
| NZD | 0.23% | -0.13% | -0.06% | 0.35% | 0.14% | -0.04% | 0.15% | |
| INR | 0.10% | -0.18% | -0.18% | -0.04% | 0.10% | -0.08% | -0.15% |
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 US Dollar from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent USD (base)/JPY (quote).
Daily digest market movers: Indian Rupee remains on backfoot as India's WPI cools down
- The major trigger for the US Dollar will be the Federal Reserve’s (Fed) monetary policy announcement on Wednesday, in which the United States (US) central bank is expected to leave interest rates steady in the current range of 4.25%-4.50%.
- As the Fed is widely anticipated to keep borrowing rates on hold, investors will closely monitor the Fed’s dot plot, which shows where policymakers see interest rates heading in the near and long term.
- Market expectations will pay close attention to whether officials remain firm in their March projection that the central bank will cut interest rates at least once this year amid heightened uncertainty over the economic outlook due to the imposition of new economic policies by US President Donald Trump.
- Investors will also focus on Fed Chair Jerome Powell’s press conference for comments regarding the impact of rising crude oil prices on the inflation outlook. Theoretically, higher Oil Prices discourage the Fed from supporting interest rate cuts.
- Ahead of the Fed’s monetary policy, investors will focus on the Retail Sales data for May, which will be released on Tuesday. The Retail Sales data, a key measure of consumer spending, is expected to have declined by 0.7% on month after a 0.1% growth in April.
- Meanwhile, cooling inflationary pressures and consistent foreign outflows from the Indian market are factors responsible for the Indian Rupee’s underperformance, other than soaring Oil prices.
- Last week, the data showed that year-on-year CPI rose by 2.82% on year, the lowest level seen in over six years, signaling the need for further interest rate cuts by the Reserve Bank of India (RBI). The inflation report showed that modest growth in food inflation was the major factor contributing to slower CPI growth. During European trading hours, India's Wholesale Price Index (WPI) inflation for May also came in softer than projected. The underlying inflation rose by 0.39%, moderately against estimates of 0.8% and the prior reading of 0.85%.
- In the Indian equity market, Foreign Institutional Investors (FIIs) have been net sellers in the last three trading sessions. FIIs have sold equities worth Rs. 4,812.39 crores this month till June 13, according to data from exchanges.
- On the trade front, officials from the Indian trade ministry have stated that the administration aims to reach an interim agreement with the US before July 9, the day on which the deadline for reciprocal tariffs announced by President Donald Trump will expire
Technical Analysis: USD/INR retreats after refreshing two-month high near 86.25
The USD/INR pair falls back after posting a fresh two-month high near 86.25 on Monday. The pair gained sharply after a strong recovery move from the 20-day Exponential Moving Average (EMA) on June 12, around 85.45.
The 14-day Relative Strength Index (RSI) breaks above 60.00, suggesting that a fresh bullish momentum has been triggered.
Looking down, the 20-day EMA is a key support level for the major. On the upside, the May 23 high of 86.44 will be a critical hurdle for the pair.
US Dollar FAQs
The US Dollar (USD) is the official currency of the United States of America, and the ‘de facto’ currency of a significant number of other countries where it is found in circulation alongside local notes. It is the most heavily traded currency in the world, accounting for over 88% of all global foreign exchange turnover, or an average of $6.6 trillion in transactions per day, according to data from 2022. Following the second world war, the USD took over from the British Pound as the world’s reserve currency. For most of its history, the US Dollar was backed by Gold, until the Bretton Woods Agreement in 1971 when the Gold Standard went away.
The most important single factor impacting on the value of the US Dollar is monetary policy, which is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability (control inflation) and foster full employment. Its primary tool to achieve these two goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, the Fed will raise rates, which helps the USD value. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates, which weighs on the Greenback.
In extreme situations, the Federal Reserve can also print more Dollars and enact quantitative easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used when credit has dried up because banks will not lend to each other (out of the fear of counterparty default). It is a last resort when simply lowering interest rates is unlikely to achieve the necessary result. It was the Fed’s weapon of choice to combat the credit crunch that occurred during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy US government bonds predominantly from financial institutions. QE usually leads to a weaker US Dollar.
Quantitative tightening (QT) is the reverse process whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing in new purchases. It is usually positive for the US Dollar.
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.
