USD/INR gathers strength ahead of Fed Powell’s testimony
- The Indian Rupee trades in negative territory on Tuesday.
- The local currency declines on the back of a firmer US Dollar and fears of disruption in US oil supply.
- Investors will closely monitor Fed Chair Jerome Powell’s testimony on Tuesday.
The Indian Rupee (INR) weakens on Tuesday amid the recovery of the Greenback. The local currency loses traction as concerns about tropical storm Beryl disrupting US oil supply weigh on sentiment. However, the rising bets on a September rate cut by the US Federal Reserve (Fed) after US employment data on Friday signaled a cooling US labor market, which might undermine the US Dollar (USD).
The Fed Chairman Jerome Powell's semi-annual monetary policy testimony to US lawmakers on Tuesday will be closely watched. This event "could be an opportunity for him to share whether the odds of a September rate cut have improved with the latest data", said an ING Bank analyst. The dovish comments from Chair Powell might drag the Greenback lower and cap the upside for the pair.
Daily Digest Market Movers: Indian Rupee is sensitive to global headwinds
- India will likely peg its FY25 fiscal deficit target at 5.1% of GDP in the upcoming budget, according to Goldman Sachs.
- India’s employment growth rate stood at 6% in this fiscal year versus 3.2% in the previous fiscal year. The total additions to the workforce at 46.7 million were the highest since 1981-1982, the Reserve Bank of India (RBI) report showed on Monday.
- "Bids from state-run banks capped the rupee's gains around 83.44, and they were also on offer near 83.48 in the second half (of the session)," said a foreign exchange trader at a foreign bank.
- According to the CME FedWatch tool, traders are now pricing in nearly 76% odds of a Fed rate cut in September, up from 71% last Friday.
- The US CPI is estimated to show an increase of 3.1% YoY in June, compared to a 3.3% rise in May. Core inflation is projected to remain steady at 3.4% YoY in June.
Technical analysis: USD/INR enters a consolidation phase in the near term
However, in the shorter term, the pair remains confined within a familiar trading range since March 21, with the 14-day Relative Strength Index (RSI) hovering around the 50-midline. This indicates that further consolidation is in play.
The potential resistance level for the pair will emerge at 83.65, the upper boundary of the trading range. Extended gains could pave the way to the all-time high of 83.75, followed by the 84.00 psychological barrier.
On the downside, the initial support level for USD/INR is located at 83.35, the 100-day EMA. A decisive break below this level will drag the pair lower to the 83.00 round figure. The next contention level to watch is 82.82, a low of January 12.
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 strongest against the Japanese Yen.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | -0.85% | -1.28% | -0.77% | -1.33% | -0.35% | -0.99% | -0.53% | |
| EUR | 0.84% | -0.44% | 0.07% | -0.48% | 0.48% | -0.14% | 0.31% | |
| GBP | 1.27% | 0.44% | 0.51% | -0.05% | 0.91% | 0.30% | 0.75% | |
| CAD | 0.77% | -0.08% | -0.52% | -0.54% | 0.40% | -0.21% | 0.25% | |
| AUD | 1.31% | 0.48% | 0.04% | 0.55% | 0.96% | 0.34% | 0.78% | |
| JPY | 0.36% | -0.49% | -0.92% | -0.41% | -0.97% | -0.63% | -0.17% | |
| NZD | 0.98% | 0.14% | -0.30% | 0.21% | -0.34% | 0.62% | 0.45% | |
| CHF | 0.53% | -0.31% | -0.75% | -0.23% | -0.78% | 0.17% | -0.45% |
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
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.
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.
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.
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.
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.
