USD/INR gains at open despite US Dollar faces pressure
- The Indian Rupee weakens against the US Dollar, with the USD/INR pair rising to near 88.60.
- The US Dollar faces pressure despite receding Fed dovish expectations.
- US President Trump reduced tariffs on China to 47% from 57%.
The Indian Rupee (INR) opens close to Wednesday’s low around 88.60 against the US Dollar (USD) on Thursday. The USD/INR pair holds onto the previous day’s gains even as the US Dollar trades lower
At the time of writing, the US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, trades lower to near 99.00.
On Wednesday, the US Dollar attracted significant bids on Wednesday after Fed Chair Jerome Powell ruled out hopes of further monetary policy easing in December, following the 25 basis points (bps) reduction in interest rates that pushed them lower to 3.75%-4.00%.
“Today’s cut was risk management, but another cut in December is far from assured,” Fed’s Chair Powell said in the press conference after the interest rate policy announcement. However, Powell assured that risks to inflation remaining persistent have declined significantly since April, but stressed that it would not be appropriate to ignore them. On the current status of the labor market, Powell expressed concerns again, citing that “available evidence suggests layoffs and hiring remain low”.
Daily digest market movers: Indian Rupee underperforms its peers
- The Indian Rupee underperforms its peers at open on Thursday amid uncertainty over the stance of overseas investors on investment in the Indian stock market.
- The overall trading action by Foreign Institutional Investors (FIIs) seen so far in October has appeared to be slightly positive against the relentless selling seen in the July-September period. However, investors still struggle to gauge whether FIIs will return to the Indian equity market.
- So far in October, FIIs have bought shares worth Rs. 7,500.04 crores, which is majorly driven by the purchase of Rs. 10,339.80 crores worth of investment on Tuesday. On Wednesday, foreign investors turned bearish again and sold shares worth Rs. 2,540.16 crores.
- FIIs struggle to turn decisively bullish on Indian equity markets due to a delay in the announcement of a trade deal between the US and India. Top negotiators from both nations have been expressing confidence that they are close to reaching a consensus; however, investors seek confirmation before clearing a stance.
- This weekend, a Bloomberg report showed that negotiators from both nations have agreed on almost all issues, and a deal could be announced soon.
- On the global front, the meeting between US President Donald Trump and Chinese leader Xi Jinping has concluded, and both leaders have signaled numerous positive outcomes. Trump has stated to reporters at Air Force One that soybean deals will begin right away, Beijing will continue exporting rare earths to the US, and tariffs on China will be reduced to 47% from 57%.
Technical Analysis: USD/INR gains to near 88.60
USD/INR rises to near 88.60 at open on Thursday. The pair returns and strives to hold above the 20-day Exponential Moving Average (EMA), which trades around 88.44. This suggests that the near-term trend has become bullish.
The 14-day Relative Strength Index (RSI) rises towards 60.00. A fresh bullish momentum would emerge if the RSI breaks above that level.
Looking down, the August 21 low of 87.07 will act as key support for the pair. On the upside, the all-time high of 89.12 will be a key barrier.
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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