USD/INR recovers its recent losses, geopolitical risks eyed

Source Fxstreet
Apr 22, 2024 03:49
  • Indian Rupee kicks off the new week on a positive note on Monday.
  • The speculation that the Fed will delay the interest rate cuts and the rising Middle East tension boosted the Greenback. 
  • Indian HSBC PMI data for April will be due on Tuesday. 

Indian Rupee (INR) snaps the three-day winning streak on Monday. The hawkish tone of Federal Reserve (Fed) officials has prompted investors to dial back interest rate cut expectations, which boosts the US Dollar (USD). Additionally, the fear of oil supply disruption due to the ongoing geopolitical tensions in the Middle East has exerted some selling pressure on the INR as India is heavily dependent on oil imports. Nonetheless, the downside of INR might be capped due to the possibility that the Reserve Bank of India (RBI) would intervene heavily again to prevent the INR from depreciation.

Market players will focus on the preliminary India’s HSBC Purchasing Managers Index (PMI) for April, due on Tuesday. On the US docket, the Federal Reserve (Fed) will not speak during the blackout period. The S&P Global PMI for April will be released on Tuesday. The first reading of Gross Domestic Product (GDP) Annualized for the first quarter (Q1) will be published on Thursday. On Friday, the final reading of the US March Personal Consumption Expenditures Price Index (PCE) will be in the spotlight. The Core PCE inflation is expected to rise to 2.6% YoY.

Daily Digest Market Movers: The Indian Rupee weakens amid the multiple global factors

  • India’s foreign exchange reserves contracted by $5.4 billion to $643.16 billion for the week ended on April 12, according to the Reserve Bank of India (RBI). 
  • RBI governor Shaktikanta Das cited robust growth in the Indian economy, underpinned by an upturn in manufacturing and the investment cycle, as grounds to keep interest rates on hold.
  • RBI's monetary policy committee focuses on uncertainties like supply-side shocks, geo-political tensions, and financial market volatility to meet the 4% inflation target by carefully managing monetary policy tools such as the repo rate.
  • Chicago Fed President Austan Goolsbee said that inflation progress had “stalled” and the Fed’s current restrictive policy is appropriate. 
  • Atlanta Fed President Raphael Bostic stated that the US central bank wouldn’t cut rates until the end of the year.

Technical analysis: USD/INR remains bullish in the long term

The Indian Rupee trades on a stronger note on the day. The positive outlook of USD/INR remains intact above the key 100-day Exponential Moving Average (EMA) on the daily timeframe. Furthermore, the 14-day Relative Strength Index (RSI) holds in bullish territory around 55.00, supporting the buyers for the time being. 

A high of April 15 at 83.50 acts as an immediate resistance level for the pair. Extended bullish movement may provide an opportunity for USD/INR to reach an all-time high of 83.72. A clear break above this level will expose the 84.00 psychological level. On the flip side, the first downside target to watch is a low of April 11 at 83.30. Consistent trading below the mentioned level could lead to the 100-day EMA at 83.12. 

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 Swiss Franc.

  USD EUR GBP CAD AUD JPY NZD CHF
USD   -0.03% -0.05% -0.07% -0.18% 0.03% -0.45% 0.08%
EUR 0.03%   -0.02% -0.04% -0.14% 0.06% -0.17% 0.11%
GBP 0.04% 0.01%   -0.03% -0.14% 0.07% -0.17% 0.12%
CAD 0.07% 0.04% 0.02%   -0.11% 0.09% -0.15% 0.15%
AUD 0.18% 0.15% 0.13% 0.11%   0.21% -0.04% 0.26%
JPY -0.03% -0.06% -0.09% -0.11% -0.21%   -0.25% 0.05%
NZD 0.21% 0.19% 0.16% 0.14% 0.04% 0.24%   0.30%
CHF -0.08% -0.11% -0.13% -0.15% -0.25% -0.05% -0.28%  

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.
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