USD/INR gains at open as US immigration crackdown dampens Indian Rupee
- The Indian Rupee fell to near 88.40 against the US Dollar following the US announcement of a one-time fee on H-1B visa applicants.
- India’s Commerce Minister Goyal is scheduled to visit Washington for trade talks on Monday.
- Fed’s Daly stated that the interest rate cut was aimed at bolstering the slowing US labor market.
The Indian Rupee (INR) opens lower against the US Dollar (USD) at the start of the week. The USD/INR pair rises to near 88.40 as the announcement of the one-time hefty $1,00,000 fee on new applicants for H-1B visas by the United States (US) has raised concerns over the outlook of Indian tech companies, which are heavily reliant on business coming from Washington.
According to a report from Bloomberg, the aim of a significant overhaul of the H-1B visa program by the US economy is to create jobs for Americans. Additionally, US President Donald Trump is also planning to direct the Labor Secretary to begin a rulemaking process to revise prevailing-wage levels for the H-1B program.
Such a scenario is unfavorable for companies in nations, like India, that send a number of their employees to the US to smooth the functioning of business operations. The impact will be significant on Indian IT’s employee cost, which could hit their margins badly.
The outlook of the Indian Rupee has already remained weak due to ongoing trade tensions between the US and India. Washington has imposed 50% tariffs on imports from New Delhi, which includes a 25% penalty duty for buying Oil from Russia.
Meanwhile, India’s Commerce Minister Piyush Goyal has announced, over the weekend, that he will visit Washington on Monday for further discussions on the trade agreement. Last week, top negotiators from the US visited India for trade talks and expressed confidence in closing a deal soon.
Daily digest market movers: Upbeat US Dollar drives USD/INR higher
- The upside move in the Indian Rupee is also driven by strength in the US Dollar. The US currency extends its winning streak for the fourth trading day on Monday, which came post 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%.
- The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, trades firmly near the weekly high around 97.80.
- This week, investors will focus on speeches from a slew of Federal Open Market Committee (FOMC) members, including Chairman Jerome Powell, to get cues on the monetary policy outlook for the remainder of the year.
- In the monetary policy announcement on Wednesday, the Fed’s dot plot showed that policymakers see the Federal Funds Rate heading to 3.6% by the end of the year, suggesting that the central bank will cut interest rates in both of the remaining meetings this year.
- On Friday, San Francisco Fed President Mary C. Daly clarified that the interest rate cut move by the Fed, the first this year, was to “try and bolster the weakening labor market”. Daly added that the job market has softened quite a bit from the last year, but it is difficult to gauge the impact of Artificial Intelligence (AI) when asked about whether AI is hampering job growth.
- On the economic data front, investors will focus on the preliminary US private sector Purchasing Managers’ Index (PMI) data for September, which will be released on Tuesday. The US Composite PMI is estimated to have grown at a steady pace to 54.6.
Technical Analysis: USD/INR recovers to near 88.40
USD/INR rebounds to near 88.40 on Monday after correcting to near 88.20 on Friday. The near-term trend of the pair remains bullish as it stays above the 20-day Exponential Moving Average (EMA), which trades around 88.10.
The 14-day Relative Strength Index (RSI) recovers 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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