USD/INR loses traction, eyes on potential RBI intervention

Source Fxstreet
Apr 18, 2024 03:15
  • Indian Rupee trades on a stronger note on Thursday. 
  • Rising oil prices and higher expectations that the Fed will delay rate cuts weigh on the INR. 
  • Investors await the Initial Jobless Claims, Philly Fed Manufacturing Index, Existing Home Sales, and Fed speakers on Thursday. 

Indian Rupee (INR) recovers some lost ground on Thursday. The INR dropped to a record low on Wednesday, weighed by the worries that escalating tensions in the Middle East could disrupt supplies and boost oil prices. India is the third-largest consumer and importer of crude oil. Therefore, higher oil prices could damage the economy and put pressure on INR. Furthermore, the growing expectations that the Federal Reserve (Fed) will delay rate cuts provide some support to the Greenback and create a tailwind for the USD/INR pair. However, the further upside of the pair might be limited due to the potential intervention from the Reserve Bank of India (RBI) to prevent local currency from depreciation.

Market participants will keep an eye on the usual weekly Initial Jobless Claims, the Philly Fed Manufacturing Index, and Existing Home Sales, due on Thursday. Also, the Fed’s Bowman, Williams, and Bostic are set to speak later in the day. On Friday, the RBI Monetary Policy Committee (MPC) Meeting Minutes will be released. 

Daily Digest Market Movers: Indian Rupee recovers amid RBI intervention possibility

  • RBI was likely selling Dollars via state-run banks on Tuesday to curb the INR’s losses spurred by a selloff in Asian equities and currencies, four traders told Reuters.
  • Indian economy's growth momentum is expected to decelerate in 2024 to 6.5% against the 6.7% growth recorded in the previous year, according to the United Nations Trade and Development (UNCTAD).
  • Fed Cleveland President Loretta Mester said that inflation is higher than expected, and the US Fed needs more confidence in its trajectory. 
  • Fed Governor Michelle Bowman noted that inflation progress slows and possibly halts, adding that monetary policy is currently restrictive and that time will tell if it is "sufficiently" restrictive.
  • Fed Chair Jerome Powell said that he will wait longer than previously expected to cut rates after unexpectedly upside inflation data. Powell added that the Fed will likely take more time to gain confidence that price growth is headed toward the Fed’s 2% target before lowering borrowing costs.
  • Fed funds futures have priced in a 71% odds that the first rate cut could come in September, according to the CME FedWatch Tool. 

Technical analysis: USD/INR keeps the bullish vibe unchanged

The Indian Rupee trades firmer on the day. The positive outlook of USD/INR remains intact as the pair is above the key 100-day Exponential Moving Average (EMA) on the daily chart. The bullish momentum is also supported by the 14-day Relative Strength Index (RSI), which hovers around 59.00, supporting the buyers for the time being. 

An all-time high of 83.72 acts as an immediate resistance level of the pair. Any follow-through buying above this level will expose the 84.00 psychological barrier. On the downside, the initial support level is seen near a low of April 12 at 83.30. The crucial contention level to watch is the 83.00–83.10 region, portraying the round figure and the 100-day EMA. A breach of the mentioned level will pave the way to a low of March 14 at 82.80. 

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   -0.09% -0.12% -0.12% -0.26% -0.10% -0.25% -0.08%
EUR 0.08%   -0.04% -0.03% -0.17% -0.02% -0.17% -0.03%
GBP 0.12% 0.02%   0.00% -0.10% 0.02% -0.14% 0.02%
CAD 0.12% 0.03% 0.00%   -0.14% 0.01% -0.14% 0.02%
AUD 0.23% 0.14% 0.11% 0.10%   0.13% -0.02% 0.14%
JPY 0.11% 0.02% -0.02% -0.03% -0.14%   -0.14% 0.01%
NZD 0.26% 0.17% 0.14% 0.14% 0.05% 0.15%   0.14%
CHF 0.12% 0.03% -0.02% -0.03% -0.15% 0.03% -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 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

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.


Disclaimer: For information purposes only. Past performance is not indicative of future results.