USD/INR weakens as India sees strong growth in business

Source Fxstreet
May 24, 2024 03:32
  • Indian Rupee gains ground despite the firmer USD on Friday. 
  • India’s flash PMI showed a robust expansion in May, boosting the INR. 
  • US Durable Goods Order, Michigan Consumer Sentiment Index report, and speech from Fed’s Waller are the highlights on Friday. 

Indian Rupee (INR) trades with a mild positive bias on Friday despite the rebound of the US Dollar (USD). The strong growth of India's business sector in May and the sharp exports and job addition rate provide some support to the INR. Additionally, a decline in crude oil prices underpins the local currency, as India is the world's third-biggest oil importer and consumer. 

On Friday, investors will focus on the US Durable Goods Orders, the Michigan Consumer Sentiment Index, and the Fed’s Waller speech for fresh impetus. The stronger US economic data and hawkish remarks from Federal Reserve (Fed) officials might lift the Greenback and limit the downside for the pair. Also, the foreign outflows ahead of India's upcoming election outcome might also weigh on the INR. 

Daily Digest Market Movers: Indian Rupee remains strong, supported by robust economic data

  • India’s flash HSBC Composite PMI came in at 61.7 in May from 61.5 in April, reaching the third strongest reading in nearly 14 years and marking the 34th consecutive month above the 50-level, which separates growth from contraction.
  • The Indian Manufacturing PMI dropped to 58.4 in May from 58.8 in April. The services PMI index rose to a four-month high of 61.4 in May from 60.8 in April. 
  • The preliminary US S&P Composite PMI came in better than market expectations, jumping to 54.4 in May from 51.3 in April, the highest level since April 2022.
  • The US Manufacturing PMI rose to 50.9 in May versus 50.0 in April, above the market consensus of 50.0. The Services PMI jumped to 54.8 in May, better than the estimation and previous reading of 51.3.
  • The US Initial Jobless Claims for the week ending May 18 declined to 215K from the previous week's reading of 223K, lower than the expectation of 220K.

Technical analysis: USD/INR becomes more vulnerable on the daily timeframe

The Indian Rupee trades stronger on the day. The USD/INR pair has formed the Head and Shoulders pattern since March 21. The bullish picture of the pair seems fragile on the daily chart as the price is hovering around the key 100-day Exponential Moving Average (EMA) and the neckline. If USD/INR crosses below the mentioned level, its downside could resume. Meanwhile, the 14-day Relative Strength Index (RSI) stands in bearish territory near 42.30, suggesting that further consolidation or downside cannot be ruled out. 

The confluence of the 100-day EMA and the neckline of 83.20 is the potential support level for USD/INR. A decisive closing price below this level could pave the way to the 83.00 psychological level and a low of January 15 at 82.78. 

On the upside, any follow-through buying above the right shoulder of the Head and Shoulders pattern of 83.54 (high of May 13) would end up invalidating the chart pattern and attract some buyers 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 weakest against the Pound Sterling.

  USD EUR GBP CAD AUD JPY NZD CHF
USD   0.04% 0.03% 0.05% 0.10% 0.07% 0.05% 0.10%
EUR -0.04%   -0.01% -0.01% 0.08% 0.04% 0.03% 0.05%
GBP -0.03% 0.01%   0.02% 0.09% 0.07% 0.05% 0.07%
CAD -0.04% 0.04% 0.00%   0.10% 0.04% 0.04% 0.06%
AUD -0.10% -0.07% -0.09% -0.06%   -0.05% -0.05% 0.00%
JPY -0.09% -0.05% -0.06% -0.06% 0.02%   0.01% 0.02%
NZD -0.05% -0.03% -0.04% -0.02% 0.05% 0.00%   0.02%
CHF -0.10% -0.04% -0.07% -0.06% 0.01% -0.02% -0.04%  

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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