USD/INR recovers some lost ground, eyes on FOMC Minutes

Source Fxstreet
  • Indian Rupee loses momentum on Wednesday.
  • Fed officials stick to a cautious approach, boosting the Greenback. 
  • The FOMC Minutes and Fed’s Goolsbee speech are in the spotlight on Wednesday.

Indian Rupee (INR) edges lower on Wednesday as the cautious Fedspeak supports the US Dollar (USD). The Federal Reserve (Fed) officials will wait for more encouraging signs of a loosening in the labour market and further progress in slowing inflation towards its 2% target. However, the continuous positive sentiment in Indian equities might boost the INR and weigh on the pair. On Tuesday, the NIFTY50 index reached a nearly three-week high above 22,600, lifting the Indian Rupee to a three-week high versus the USD.

Investors will focus on the FOMC Minutes and the Fed's Goolsbee speech on Wednesday. On Thursday, the Indian foreign exchange and debt markets will be closed, but the preliminary India’s HSBC Manufacturing and Services PMI for May will be released. Also, the first reading of the US S&P Global PMI for May will be due later on Thursday. 

Daily Digest Market Movers: Indian Rupee struggles to gain ground amid the Fed's cautious approach

  • Overseas investors sold Indian stocks worth more than $3 billion in May, the biggest monthly outflow since January 2023.
  • The United Nations (UN) raised India's 2024 growth predictions to 6.9% this year, up from 6.2% in January. The Indian economy is expected to grow by 6.6% in 2025. 
  • The inclusion of India’s government bonds in JP Morgan’s GBI-EM index is expected to attract significant inflows of around $23 billion into India beginning June 2024 onwards, enhancing investor confidence in the country's financial markets.
  • Atlanta Fed President Raphael Bostic said that the Fed has to be cautious about the first-rate move, adding that he would prefer to wait longer for rate cuts to ensure that inflation does not begin to bounce around.
  • Fed Governor Christopher Waller stated that he needs to see several more months of good inflation data before starting to lower borrowing costs. Waller added that he does not think further rate hikes will be necessary. 
  • According to the CME FedWatch Tool, financial markets see the chance of no change in the Fed's policy rate in September at around 35%.

Technical analysis: USD/INR looks vulnerable on the daily chart

The Indian Rupee trades softer on the day. The positive stance of USD/INR seems vulnerable as the pair hovers around the key 100-day Exponential Moving Average (EMA) on the daily timeframe. The bearish outlook could resume if the pair crosses below the key EMA and the neckline of the Head and Shoulders pattern, which has been established since March 21. Furthermore, the 14-day Relative Strength Index (RSI) holds in bearish territory around 43.40, supporting the sellers for the time being.

A decisive break below the confluence of the neckline and the 100-day EMA in the 83.20–83.25 zone will expose the 83.00 psychological support. Further north, the next hurdle to watch is a low of January 15 at 82.78. 

On the upside, the immediate resistance level will emerge at the right shoulder of the Head and Shoulders pattern of 83.54 (high of May 13). Any follow-through buying would end up invalidating the chart pattern and pave the way to a high of April 17 at 83.72, en route to 84.00. 

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   0.01% 0.00% 0.01% 0.03% 0.03% -0.47% 0.02%
EUR -0.01%   -0.04% 0.00% 0.02% 0.02% -0.47% 0.02%
GBP 0.01% 0.02%   0.01% 0.04% 0.03% -0.46% 0.03%
CAD -0.01% 0.00% 0.00%   0.03% 0.02% -0.47% 0.02%
AUD -0.01% -0.02% -0.03% -0.03%   0.00% -0.47% -0.01%
JPY -0.04% -0.01% -0.01% -0.03% 0.02%   -0.49% 0.00%
NZD 0.43% 0.45% 0.44% 0.44% 0.47% 0.47%   0.46%
CHF -0.02% -0.02% -0.02% -0.02% 0.01% 0.00% -0.49%  

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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