USD/INR edges higher despite optimism on US-India trade deal
- The Indian Rupee faces pressure against the US Dollar despite hopes of a trade deal between the US and India soon.
- FIIs turned out net sellers in the Indian stock market for the third trading day in a row.
- Signs of accelerating US lay-off trend weigh on the US Dollar.
The Indian Rupee (INR) opens cautiously against the US Dollar (USD) on Friday. The USD/INR pair ticks up to near 88.75 despite hints from United States (US) President Donald Trump that his relations with Indian Prime Minister (PM) Narendra Modi are stable.
While speaking to reporters at the Oval Office on Thursday, US President Trump said, "He (PM Modi) largely stopped buying from Russia. And he is a friend of mine, and we speak. Prime Minister Narendra Modi is a great man. He is a friend of mine, and we speak and he wants me to go there. We will figure that out, I will go... Prime Minister Modi is a great man and I will be going," India Today reported. Later Trump expressed positively that he could visit India next year.
These comments from US President Trump came at a time when overseas investors have been hard on the Indian stock market due to delay in a trade agreement between India and the US. Top negotiators from both nations have been expressing that they are close to reaching a consensus from months, but have not agreed on all terms yet.
On Thursday, Foreign Institutional Investors (FIIs) turned out to be net sellers again and sold shares worth Rs. 3,263.21 crore. Cumulatively, FIIs have pared stake worth Rs. 6,214 crore so far in three trading days this month.
Daily digest market movers: Indian Rupee trades lower against US Dollar
- The Indian Rupee faces pressure against the US Dollar even as the latter corrects further, following the release of the US Challenger job cuts data for October.
- During the press time, the US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, ticks higher to near 99.80. However, it fell sharply to near 99.60 on Thursday,
- The US Challenger job cuts report showed that 153,074 employees were laid-off in October, a 183% surge from September and 175% higher seen in the same month of the previous year. This marks the highest level for any October since 2003. This has been the worst year for announced layoffs since 2009.
- The report also signaled that the adaptation of Artificial Intelligence (AI) by the private sector has led to a significant number of lay-offs in the economy, with job market conditions in the last quarter of the year becoming more unfavorable.
- Historically, the impact of the US Challenger jobs data on the US Dollar remained limited. However, its influence has accelerated in the wake of ongoing US federal shutdown, which has become the longest in history.
- Signs of cooling job market have slightly boosted expectations of another interest rate cut by the Federal Reserve (Fed) in the December policy meeting.
- The CME FedWatch tool shows that the probability of the Fed to cut interest rates by 25 basis points (bps) to 3.50%-3.75% in the December meeting has increased to 67% from 62% seen on Wednesday.
Technical Analysis: USD/INR holds key 20-day EMA
USD/INR edges up to near 88.75 on Friday. The pair continues to find support near the 20-day Exponential Moving Average (EMA), which trades around 88.60.
The 14-day Relative Strength Index (RSI) strives to return above 60.00. A fresh bullish momentum would emerge if the RSI (14) manages to do so.
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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