USD/INR edges up at open ahead of US NFP data
- The Indian Rupee falls marginally to near 88.30 against the US Dollar at open.
- Investors brace for significant action in the USD/INR after the US NFP data release.
- India’s Commerce Minister Goyal is confident about strengthening the Indian Rupee.
The Indian Rupee (INR) ticks down at open against the US Dollar (USD) on Friday. Broadly, the USD/INR pair trades sideways above 88.00 after posting a fresh all-time high earlier this week.
The broader outlook of the Indian Rupee remains uncertain amid trade tensions between the US and India. In August, Washington raised tariffs on imports from India to 50% (partially for purchasing Russian Oil, and for failing to make a trade agreement).
The imposition of almost the highest tariffs by the US in comparison with its other key trading partners has diminished the competitiveness of Indian products in the global market.
In response to the Indian Rupee trading near its all-time low against the US Dollar, India’s Union Commerce and Industry Minister Piyush Goyal has assured, in an interview with Network18 on Thursday, that the government is “monitoring the situation and we [administration] are very confident that things will go back to normal in the near future," Moneycontrol reported.
India’s Commerce Minister Goyal also hailed the rationalization of the Goods and Services Tax (GST) structure, citing that the increase in consumption from GST reforms will offset the revenue loss from tax revision. On Wednesday, India’s Finance Minister Nirmala Sitharaman abolished four-tier GST framework, and announced that there will be only two tax slabs: 5% and 18%.
On the front of foreign fund flow into Indian stock markets, a slowdown in selling by Foreign Institutional Investors (FIIs) has been observed. On Thursday, FIIs pared stake worth Rs. 106.34 crores from the Indian equity market. The pace of FIIs selling appears to be moderate in comparison with the sell-off seen in July and August.
Daily digest market movers: US Dollar is expected to trade sideways ahead of US NFP data
- The USD/INR pair has been broadly sideways over the past few trading sessions. Investors brace for a one-sided action in the pair after the release of the United States (US) Nonfarm Payrolls (NFP) data for August, which will be published at 12:30 GMT.
- At the press time, the US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, ticks down to near 98.15.
- Investors will closely monitor the US official employment data to get fresh cues about the Federal Reserve’s (Fed) monetary policy outlook for the remainder of the year.
- According to the CME FedWatch tool, traders have fully priced in a 25 basis points (bps) interest rate cut by the Fed for the September policy meeting. Fed dovish expectations intensified after the NFP report for July showed a significant downward revision in May and June’s payroll data.
- The NFP report for August is expected to show that US employers hired 75K fresh workers, almost in line with the prior reading of 73K. The Unemployment Rate is seen accelerating to 4.3% from the previous release of 4.2%. Meanwhile, Average Hourly Earnings, a key measure of wage growth, is expected to have grown at an annual pace of 3.7%, slower than 3.9% in July. On a monthly basis, the wage growth measure grew steadily by 0.3%.
- On Thursday, the US ADP Employment Change data showed signs of slowdown in the labor demand. The private sector hired 54K fresh workers, missed estimates of 65K, and the prior reading of 106K.
- Going forward, investors will also focus on the US Supreme Court verdict on tariffs imposed by President Donald Trump since his return to the White House. Lately, US appeals court called majority of additional duties as “illegal” and accused Trump for wrongfully invoking the emergency law.
Technical Analysis: USD/INR trades sideways above 88.00
USD/INR edges higher to near 88.30 at open on Friday. The near-term trend of the pair remains bullish as it holds above the 20-day Exponential Moving Average (EMA), which trades near 87.73.
The 14-day Relative Strength Index (RSI) trades calmly above 60.00, suggesting that a fresh bullish momentum has come into effect.
Looking down, the 20-day will act as key support for the major. On the upside, the pair has entered an uncharted territory. The round figure of 89.00 would be the key hurdle for the pair.
Indian Rupee FAQs
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.
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.
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.
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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