USD/INR regains ground as India’s weak fundamentals offset RBI’s intervention boost
- The Indian Rupee struggles to extend its recovery move against the US Dollar.
- FIIs offloaded a little stake on Monday after remaining net buyers in the previous three trading days.
- Investors await the US flash Q3 GDP data for fresh cues on the US Dollar’s outlook.
The Indian Rupee (INR) continues to struggle to extend its last week’s reversal move against the US Dollar (USD) on Tuesday. The USD/INR pair regains ground after posting a fresh over three-week low near 89.25 as Indian importers catch the pullback to add US Dollars at attractive levels.
Last week, the Indian Rupee bounced back strongly against the US Dollar after sliding to record lows near 91.55, following the Reserve Bank of India’s (RBI) intervention in the spot and Non-Deliverable Forward (NDF) markets to support the Indian currency against one-way depreciation from speculators.
In the December 17-19 period, buying interest seen in the Foreign Institutional Investors (FIIs) activity also led to some cushion for the Indian Rupee. FIIs turned net net buyers, and increased stake worth Rs. 3,598.38 crore in the Indian equity market. However, overseas investors have turned net sellers on Monday and have offloaded a nominal stake worth Rs. 457.34 crore.
The demand for US Dollars by Indian importers has remained strong due to the absence of a trade deal announcement between the United States (US) and India. Negotiators from both economies have signaled that they are close to reaching a consensus, but have not signed a trade pact despite several bilateral meetings over the past six months.
On the domestic front, the monthly bulletin report from the Reserve Bank of India (RBI) released on Monday showed that economic growth remained strong in November due to robust rural and urban demand. “Demand conditions remained robust, with indicators of urban demand strengthening further," the RBI report said. The RBI stated, “Coordinated fiscal, monetary and regulatory policies have helped to build resilience over the year," Reuters reported.
Daily digest market movers: US Dollar trades lower ahead of Q3 GDP data
- The US Dollar regains ground against the Indian Rupee, even as the former faces intense selling pressure ahead of the flash US Q3 Gross Domestic Product (GDP) data release at 13:30 GMT.
- As of writing, the US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, trades 0.2% lower to near 98.00.
- The US Bureau of Economic Analysis (BEA) is expected to show that the economy expanded at an annualized pace of 3.2%, slower than 3.8% in the second quarter this year. Investors will pay close attention to the GDP report to see the contribution by consumption and the services sector activity in economic growth.
- Signs of cooling household spending, even with a strong GDP growth number, would raise concerns over the economic outlook.
- Meanwhile, a slim chance of an interest rate cut by the Federal Reserve (Fed) is failing to provide support to the US Dollar. The probability of the Fed reducing interest rates by 25 basis points (bps) to 3.25%-3.50% in the January meeting is 20%, according to the CME FedWatch tool.
- In last week’s monetary policy announcement, Fed Chair Jerome Powell also said in the press conference that the bar for another interest rate cut is very high.
Technical Analysis: USD/INR strives to return above 20-day EMA
In the daily chart, USD/INR trades at 90.2950. The 20-day Exponential Moving Average (EMA) rises and stands at 90.1809, keeping the near-term bias positive as price holds above it.
The 14-day Relative Strength Index (RSI) prints 54 (neutral) after cooling from prior overbought readings, signaling balanced momentum. The rising trend line from 83.8509 underpins the advance, offering support near 89.1409. A sustained hold above the average would keep dips limited, whereas a daily close beneath it could shift focus toward the trend-line support.
The 20-day EMA has turned higher in recent sessions, with spot continuing to respect it as dynamic support. RSI near the midline corroborates a rangebound pause within the broader uptrend. Maintaining closes above the moving average would preserve bullish control and favor continuation, while a breakdown would expose the ascending support and risk a deeper pullback.
(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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