USD/INR trades flat at open ahead of US-Iran talks, FOMC Minutes
- The Indian Rupee opens on a flat note around 90.80 against the US Dollar.
- The Indian equity market struggles to lure overseas investors despite the US-India trade deal.
- Investors await US-Iran talks, FOMC Minutes, and flash US Q4 GDP data.
The Indian Rupee (INR) opens flat near Monday’s low at around 90.80 against the US Dollar (USD) on Tuesday. The USD/INR pair trades broadly stable as strong dollar demand by Indian importers continues to support the downside, while the upside remains capped amid fears of the Reserve Bank of India’s (RBI) intervention.
The outlook of the Indian Rupee remains grim as the Indian stock market struggles to attract foreign investment despite the confirmation of a trade deal between the United States (US) and India.
So far in February, Foreign Institutional Investors (FIIs) have remained net sellers, and have pared their stake worth Rs. 2,345.69 crore. On Monday, FIIs sold shares worth Rs. 972.13 crore.
Globally, investors await the second round of talks between the US and Iran in Geneva during the day. Investors will closely track the US-Iran meeting to assess the outlook of the Oil price, with assumption that an absence of a deal between both nations could prompt energy prices. This scenario will be unfavorable for the Indian Rupee, given that the economy relies heavily on imported oil to fulfill its energy needs.
Meanwhile, the sideways performance by the US Dollar ahead of the opening of US markets after an extended weekend is also keeping the USD/INR pair confined. During the press time, the US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, trades flat near 97.15.
Going forward, the major trigger for the US Dollar will be market expectations for the Federal Reserve’s (Fed) monetary policy outlook. According to the CME FedWatch tool, traders are confident that the Fed will not cut interest rates in the March and April monetary policy meetings.
Dovish Fed prospects have remained confined even as the US inflation has cooled in January. The data showed on Friday that the headline and core inflation dropped to 2.4% and 2.5%, on an annualized basis, respectively.
This week, major triggers for the US Dollar will be Federal Open Market Committee (FOMC) minutes of the January meeting and preliminary Q4 Gross Domestic Product (GDP) data. In the January policy meeting, the Fed held interest rates steady in the range of 3.50%-3.75%, and indicated that the bar for another interest rate cut is very high.
USD/INR technical analysis
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USD/INR trades flat at around 90.9035 in the opening session. Price sits marginally above the 20-day Exponential Moving Average (EMA) at 90.8822. The 20-day EMA has flattened after easing in recent sessions, pointing to consolidation.
The 14-day Relative Strength Index (RSI) at 51.19 is neutral, reflecting balanced momentum with a mild recovery from prior weakness.
As long as the price stays below the 20-day EMA, the door for further downside towards the psychological level of 90.00 remains open. On the upside, the price could rise to the February 2 low of 91.25 once it breaks decisively above the average.
(The technical analysis of this story was written with the help of an AI tool.)
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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