USD/INR extends gains, RBI rate decision eyed

Indian Rupee loses traction amid the renewed US Dollar demand.
India’s S&P Global Services PMI improved to 61.8 in January from 59.0 in December, beating the estimation of 61.2.
The Reserve Bank of India (RBI) interest rate decision on Thursday will be the highlight of this week.

Indian Rupee (INR) weakens on the day amid the firmer US Dollar (USD). India’s services sector expanded at its fastest rate in six months, owing to robust demand from domestic and external clients. The S&P Global India Services Purchasing Managers’ Index (PMI) surged to 61.8 from 59.0 in December. The final reading came in better than the preliminary estimate of 61.2, marking the 30th consecutive month of expansion above the 50-mark.

According to the survey, business confidence improved further at the start of the final fiscal quarter. Services businesses reported their highest levels of optimism since September. In addition to strong demand, companies expect investment and productivity gains to induce output growth.

The Indian economy has shown real resilience amid the high inflation and monetary policy tightening from the Reserve Bank of India (RBI). Meanwhile, the geopolitical conflict in the Middle East posed a threat to Indian growth as disruptions in Red Sea shipping could lead to an increase in consumer prices.

Moving on, the RBI Monetary Policy Committee (MPC) is scheduled to meet from February 6 to 8 and is likely to keep the repo rate unchanged for the sixth consecutive time at 6.5% on Thursday.

Daily Digest Market Movers: Indian Rupee shows resilience amid the Middle East geopolitical conflict

OECD raised India’s growth outlook for 2024-25 (FY25) to 6.2% from the 6.1% forecasted earlier in its November outlook.
Indian S&P Global Manufacturing PMI for January climbed to 56.5 from 54.9 in the previous month.
India’s foreign exchange reserve rose USD 591 million to USD 616.733 billion for the week ended January 26, according to the RBI.
India’s fiscal deficit would be 5.1% for the year ending March 2025, lower than market expectations of about 5.3 to 5.4%.
The Indian government plans to trim the budget deficit to less than 4.5% by FY26.
The finance minister emphasized on the potential for unprecedented development over the next five years.
The Reserve Bank of India (RBI) is anticipated to leave its benchmark interest rate unchanged at 6.50% on Thursday, according to economists polled by Reuters.
The US ISM Services PMI rose to 53.4 in January from 50.5 in December, better than the market expectation of 52.0.
New Orders rose to a three-month high of 55.0. The Employment Index rebounded into expansionary territory, rising to 50.5. Finally, the Prices Index jumped to 64.0.
Minneapolis Fed president Neel Kashkari said a strong economy and a possibly higher neutral rate of interest means the Fed can take time before deciding to cut the benchmark interest rate.
Fed Chair Jerome Powell stated that the central bank will proceed carefully with interest rate cuts this year.
The markets are now pricing less than a 20% chance of a March rate cut, according to the CME FedWatch tool.

Technical Analysis: Indian Rupee is to stay in the range of 82.70–83.20

Indian Rupee trades on a weaker note on the day. The USD/INR pair has oscillated within a descending trend channel since December 8. The bearish mood of USD/INR prevails for the time being as the pair is below the key 100-period Exponential Moving Average (EMA) on the daily chart and the 14-day Relative Strength Index (RSI) stands below the 50.0 midline, indicating that the path of least resistance level is to the downside.

The first contention level near the lower limit of the descending trend channel at 82.70 might attract sellers. If so, the pair could resume its slide to the next downside target at a low of August 23 at 82.45, and finally, a low of June 1 at 82.25. On the upside, a decisive move above the 83.00 psychological mark will expose the upper boundary of the descending trend channel and a high of January 18 at 83.20. A bullish breakout from this level will see a rally to a high of January 2 at 83.35.

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 .

	USD	EUR	GBP	CAD	AUD	JPY	NZD	CHF
USD		-0.08%	-0.13%	-0.22%	-0.46%	-0.18%	-0.28%	-0.11%
EUR	0.08%		-0.04%	-0.14%	-0.37%	-0.10%	-0.20%	-0.02%
GBP	0.13%	0.04%		-0.10%	-0.34%	-0.07%	-0.16%	0.02%
CAD	0.20%	0.14%	0.10%		-0.24%	0.03%	-0.06%	0.11%
AUD	0.46%	0.38%	0.34%	0.24%		0.28%	0.18%	0.35%
JPY	0.18%	0.12%	0.06%	-0.04%	-0.28%		-0.10%	0.07%
NZD	0.29%	0.20%	0.16%	0.06%	-0.17%	0.10%		0.17%
CHF	0.11%	0.03%	-0.02%	-0.11%	-0.35%	-0.07%	-0.17%

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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