USD/INR extends recovery, all eyes on US GDP data

Source Fxstreet
Apr 25, 2024 03:15
  • Indian Rupee trades with mild negative bias on Thursday. 
  • The INR’s downside might be capped, owing to a further decline in crude oil prices. 
  • Market players will closely monitor the US preliminary GDP growth number for the first quarter (Q1).

Indian Rupee (INR) extends its downside on Thursday despite the decline of the US Dollar (USD). The growing speculation that the US Federal Reserve (Fed) will delay interest rate cuts boosts the Greenback against its rivals. Nonetheless, the upside of the pair might be limited due to a further decline in crude oil prices amid easing tensions about a wider fallout between Iran and Israel.

Investors will closely monitor the US preliminary Gross Domestic Product (GDP) Annualized for the first quarter (Q1). The report could offer a clue of how strongly the US economy is growing and point to the Fed's next move. On Friday, the final reading of the US March Personal Consumption Expenditures Price Index (PCE) will be a closely watched event. Apart from this, India’s general election, which started on 19 April and will run until 1 June, will be in the spotlight. 

Daily Digest Market Movers: The Indian Rupee remains vulnerable at the start of the election

  • In mid-April, India’s foreign exchange reserves stood at USD 564.5 billion (+48 billion over a year), equating to more than 7.6 months of goods and services imports.
  • The Indian rupee remains stable at the start of the election period, holding up better than other Asian currencies so far. Since the start of April, it has only depreciated by 0.6% against the US Dollar.
  • The Indian economy needs to grow at a rate of 8–10% per annum over the next decade to reap the demographic dividend, according to the Reserve Bank of India (RBI) monthly bulletin.
  • The main economic challenge for the Indian government after the election is unemployment, according to economists polled by Reuters, who forecast India to expand at a solid 6.5% this fiscal year.
  • The US Durable Goods Orders improved 2.6% MoM or $7.3 billion, to $283.4 billion in March, compared to the 0.7% increase (revised from 1.4%) in February. The increase in overall orders was the biggest since November 2023
  • Durable Goods Orders ex Transportation rose by 0.2% MoM in March, while new orders excluding defense rose 2.3% MoM in the same period. Both figures came in below the consensus. 

Technical analysis: USD/INR keeps the bullish vibe in the longer term

The Indian Rupee trades on a softer note on the day. USD/INR maintains the positive outlook unchanged on the daily timeframe as the pair is above the key 100-day Exponential Moving Average (EMA). Nonetheless, the 14-day Relative Strength Index (RSI) hovers around the 50.00 midlines, suggesting that further consolidation is favorable for the time being. 

The first upside barrier for USD/INR will emerge at 83.50 (high of April 15). Any follow-through buying above this level will expose 83.72 (an all-time high), en route to 84.00 (round figure). On the other hand, the confluence of the 100-day EMA and a low of April 10 near the 83.10–83.15 zone. The additional downside filter to watch is 82.78 (low of January 15), followed by 82.65 (low of March 16).  

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 Japanese Yen.

  USD EUR GBP CAD AUD JPY NZD CHF
USD   -0.06% -0.06% -0.06% -0.13% 0.11% -0.12% -0.01%
EUR 0.06%   -0.01% 0.00% -0.07% 0.17% -0.07% 0.03%
GBP 0.07% -0.02%   0.01% -0.08% 0.17% -0.07% 0.02%
CAD 0.08% 0.00% 0.00%   -0.06% 0.16% -0.04% 0.05%
AUD 0.13% 0.05% 0.07% 0.05%   0.21% 0.00% 0.12%
JPY -0.11% -0.16% -0.17% -0.18% -0.23%   -0.25% -0.12%
NZD 0.11% 0.04% 0.06% 0.02% -0.02% 0.21%   0.13%
CHF 0.01% -0.04% -0.06% -0.06% -0.11% 0.12% -0.09%  

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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