USD/INR rebounds on month-end importer US Dollar bid

The Indian Rupee loses ground in Tuesday’s early European session.
Month-end importer US Dollar bid weigh on the INR.
The US Conference Board’s Consumer Confidence report is due later on Tuesday.

Lallalit Srijandorn FXStreet

The Indian Rupee (INR) edges lower on Tuesday after hitting a two-week high in the previous session. The month-end US Dollar (USD) demand from local companies and foreign banks, likely on behalf of custodial clients, undermine the Indian currency. Furthermore, expectations of lower interest rates by the Reserve Bank of India (RBI) also weigh on the local currency.

Nonetheless, a decline in crude oil prices might support the INR. It’s worth noting that India is the world's third-largest oil consumer, and lower crude oil prices tend to have a positive impact on the INR value. Traders brace for the US Conference Board’s Consumer Confidence report, which is due later on Tuesday. Also, Durable Goods Orders and the Dallas Fed Manufacturing Index will be released. The Minutes of the Federal Open Market Committee (FOMC) will be the highlight later on Wednesday.

Indian Rupee weakens amid renewed US Dollar demand

"It's a very EM positive environment, and I don't see any reason why that will stop in the near term," said Brad Bechtel, global head of foreign exchange at Jefferies. Bechtel emphasized that the US Dollar (USD) could face steeper losses if China allows the Yuan to start moving substantially higher.
The Monetary Policy Committee (MPC) of the RBI is likely to cut the repo rate by 25 basis points (bps) at the June meeting, according to Moneycontrol’s poll of economists and bank treasury heads.
NITI Aayog Chief Executive Officer (CEO) BVR Subrahmanyam said that India has surpassed Japan to become the world’s fourth-largest economy, citing data from the International Monetary Fund (IMF).
According to the CME FedWatch tool, the chances of an interest rate cut by the Federal Reserve (Fed) in June’s meeting are only at a low of 5.6%.

USD/INR retains the negative bias in the longer term

The Indian Rupee trades on a negative note on the day. The bearish outlook of the USD/INR pair remains in place as the price is below the key 100-day Exponential Moving Average (EMA) on the daily chart. Furthermore, downward momentum is reinforced by the 14-day Relative Strength Index (RSI), which stands below the midline near 45.00. This suggests that further downside looks favorable in the near term.

The first support level for USD/INR is located at 84.78, the low of May 26. Any follow-through selling below this level could set off a drop to 84.61, the low of May 12. The additional downside filter to watch is 84.05, the lower limit of the trend channel.

In the bullish case, the 100-day EMA at 85.55 acts as an immediate resistance level for the pair. Sustained trading above the mentioned level possibly lifts USD/INR up to 85.75, the upper boundary of the trend channel. Further north, the next hurdle is seen at 85.10, the high of May 22.

(This story was corrected on May 27 at 12:17 GMT to say that the Indian Rupee edges lower on Tuesday, not Wednesday.)

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.

Author

Lallalit Srijandorn

FXStreet

Lallalit Srijandorn is a Parisian at heart. She has lived in France since 2019 and now becomes a digital entrepreneur based in Paris and Bangkok.

AUD/USD trims some losses, bounces back to 0.7150

AUD/USD has traded on the back foot on Monday, coming close to the 0.7100 mark before rebounding toward the 0.7150 region ahead of the opening bell in Asia. The Greenback’s solid performance has kept the risk complex under pressure, sending the Aussie to fresh monthly lows on the back of rising bets for a Fed rate hike this week. on Tuesday, investors are now expected to closely follow key data releases in China.

USD/JPY: Japanese Yen edges lower vs USD amid Middle East jitters as Fed, BoJ meetings loom

The USD/JPY pair attracts some buyers at the start of a new week and climbs closer to the 154.00 mark during the Asian session, reversing a part of Friday's losses. Spot prices, however, remain confined in a range held over the past week or so and within striking distance of a nearly seven-month low, touched last Tuesday, as traders await this week's key central bank events.

Gold retests $4,300; USD losses momentum

Gold picks up fresh upside traction and challenges the key $4,300 mark per troy ounce on Monday. The yellow metal, however, remain on the back foot on the back of marked gains in the US Dollar and rising US Treasury yields across the curve.

JasmyCoin: Upbit delisting raises risk of further losses

JasmyCoin shows signs of stability at the time of writing on Monday. However, the token remains constrained between support at $0.0035 and resistance at $0.0040. Since May, its technical structure has continued to deteriorate, with the price falling from highs of $0.0078. JASMY’s outlook suggests that bears have the upper hand as bulls fight to defend key support levels.

Will the Fed deliver the hawkishness markets are pricing in?

Fed hike bets increase after PPI and CPI reports. Updated dot plot to be crucial for the dollar’s reaction. Warsh’s independence faces test amid Trump’s pressure for lower rates. For the Dollar to extend gains, Fed needs to satisfy current hawkish bets.

Venezuela’s 65-billion-barrel Oil deal could reshape America’s inflation fight

The United States (US) has secured unprecedented access to part of Venezuela’s vast Oil reserves. The timing is particularly significant as the war with Iran is disrupting Middle Eastern supplies, keeping energy prices elevated and reviving concerns about inflation.