Indian Rupee posts modest gains, focus on Fed rate decision
- The Indian Rupee trades with a mild positive bias in Tuesday’s Asian session.
- The INR is weighed by the month-end US Dollar demand and India’s equity outflows.
- The Fed Interest Rate Decision will be the highlight on Wednesday.
The Indian Rupee (INR) trades stronger on Tuesday despite the recovery of the US Dollar (USD). However, the local currency remains under pressure amid month-end corporate demand for USD and substantial foreign fund outflows from Indian equities. Furthermore, the volatile Chinese Yuan and weaker sentiment contribute to the INR’s downside.
Nonetheless, extended losses in crude oil prices might limit the downside for the Indian Rupee as India is the third largest consumer of oil behind the US and China. Investors will closely watch the US Federal Reserve (Fed) Interest Rate Decision on Wednesday. The Fed is widely expected to keep rates unchanged in the range of 5.25%-5.50% for the eighth time in a row at its July meeting. Market players will shift their attention to the Indian HSBC Manufacturing PMI and US employment data later this week, which will be released on Thursday and Friday, respectively.
Daily Digest Market Movers: Indian Rupee recovers despite multiple challenges
- “Rupee has been continuously depreciating due to equity outflows and tracking Asian currencies. There is Dollar demand from importers. Despite the fall in the US Dollar index, the Rupee is depreciating because the market is not looking at it right now,” said V R C Reddy, head of treasury at Karur Vysya Bank.
- The final reading of the Indian HSBC Manufacturing Purchasing Managers Index (PMI) is estimated to improve to 58.5 in July from the previous reading of 58.3.
- "The case to cut is already strong, and the Fed will likely use the July meeting to plant a seed that a cut in September is on the table," noted Ryan Sweet, chief US economist at Oxford Economics.
- Investors are now seeing that the first rate cut will come by mid-September, pricing in 100% of the Fed rate cut by at least a quarter-percentage-point by then, according to data from the CME FedWatch Tool.
- The US Dallas Fed Manufacturing Business Index came in at -17.5 in July from -15.1 in the previous reading.
Technical analysis: Indian Rupee remains bearish in the longer term
Indian Rupee trades with mild gains on the day. The constructive bias of the USD/INR pair remains in place as the pair has held above the key 100-day Exponential Moving Average (EMA) and is depicted by an uptrend line since June 3 on the daily chart. The 14-day Relative Strength Index (RSI) stands above the midline near 61.45, indicating bullish momentum in the near term and longer term.
The all-time high of 83.85 acts as an immediate resistance level for the pair. Extended gains above this barrier open USD/INR to a move to the 84.00 psychological level.
A resumption of the bearish swing might pave the way to the uptrend line around 83.70. The next contention level is located at 83.51, a low of July 12. The crucial support level is seen at 83.44, the 100-day EMA.
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 New Zealand Dollar.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | 0.01% | 0.08% | -0.02% | 0.02% | 0.13% | -0.10% | 0.05% | |
| EUR | -0.01% | 0.05% | -0.03% | 0.04% | 0.14% | -0.11% | 0.05% | |
| GBP | -0.05% | -0.06% | -0.08% | -0.04% | 0.08% | -0.15% | -0.01% | |
| CAD | 0.02% | 0.03% | 0.09% | 0.04% | 0.15% | -0.08% | 0.07% | |
| AUD | -0.05% | -0.02% | 0.03% | -0.05% | 0.09% | -0.11% | 0.00% | |
| JPY | -0.14% | -0.13% | -0.07% | -0.18% | -0.10% | -0.24% | -0.10% | |
| NZD | 0.08% | 0.11% | 0.16% | 0.07% | 0.12% | 0.23% | 0.15% | |
| CHF | -0.05% | -0.04% | 0.01% | -0.07% | -0.01% | 0.07% | -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.
Recommended Articles
