USD/INR moves higher as US Dollar gains ground, Fed Daly’s speech eyed
- The Indian Rupee ticks down to near 88.40 against the US Dollar as the Greenback trades firmly.
- The US Initial Jobless Claims for the week ending September 13 came in lower at 231K.
- India’s CEA Nageswaran expresses optimism that US-India trade tensions will resolve in a couple of months.
The Indian Rupee (INR) opens on a slightly negative note against the US Dollar (USD) on Friday. The USD/INR pair ticks up to near 88.40, extending its Thursday’s strong recovery move.
The pair has bounced back as the US Dollar gained ground after the monetary policy announcement by the Federal Reserve (Fed) on Wednesday, in which it reduced interest rates by 25 basis points (bps) to 4.00%-4.25%.
During the press time, the US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, trades firmly near a two-day recovery move around 97.50.
However, the outlook of the US Dollar remains uncertain as closely tracked Fed’s dot plot has signaled that the United States (US) central bank will cut interest rates two times more in the remainder of the year, along with one rate cut each in 2026 and 2027.
Meanwhile, better-than-projected Initial Jobless Claims data for the week ending September 12 has also offered some support to the US Dollar. The Department of Labour reported on Thursday that the number of individuals seeking jobless benefits for the first time came in lower at 231K than estimates of 240K and the prior reading of 264K.
Going forward, investors will focus on the speech from San Francisco Fed President Mary Daly scheduled at 18:30 GMT. Investors would look for cues regarding the pace of interest rate cuts by the Fed in the monetary policy meeting ahead.
Daily digest market movers: Indian Rupee weakens despite US-India trade deal optimism
- The Indian Rupee struggles to gain ground against the US Dollar despite growing hopes that the US and India will reach a trade agreement soon.
- The optimism over the US-India trade truce accelerated after comments from India’s Chief Economic Adviser (CEA) V. Anantha Nageswaran on Thursday, in a gathering in Kolkata, stating that Washington might roll back the 25% tariff penalty on Indian imports in the next couple of months.
- “Beneath the surface, lots of conversations are going on between the two governments. Although I don't have a crystal ball or any insider information, I can say that my personal confidence is that in the next couple of months, if not earlier, we will see a resolution, at least to the extra tariff of 25%,” Nageswaran said, Mint reported.
- Washington imposed an extra 25% tariff on India in early August for buying Oil from Russia, blaming India for indirectly funding Moscow for continuing the war with Ukraine.
- India’s CEA Nageswaran has also expressed confidence that the US will reduce 25% reciprocal tariffs on New Delhi to between 10% and 15%.
- India-made products would regain their glory in the global market if the US reduces tariffs on imports from New Delhi as projected. The ongoing trade tensions between the US and India have impacted the interest of overseas investors in the Indian stock market significantly.
- Foreign Institutional Investors (FIIs) have pared stake worth Rs. 1,05,532 crores in Indian equity markets since the first day of July this year.
Technical Analysis: USD/INR recovers from 20-day EMA
USD/INR trades firmly near 88.40 on Friday. The near-term trend of the pair remains bullish as it has bounced back strongly after correcting to near the 20-day Exponential Moving Average (EMA), which currently trades around 88.08.
The 14-day Relative Strength Index (RSI) rebounds to near 60.00. A fresh bullish momentum would emerge if the RSI breaks above that level.
Looking down, the 20-day EMA will act as key support for the major. On the upside, the September 11 high of 88.65 would be the key hurdle for the pair.
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.
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