USD/INR refreshes monthly high on consistent FIIs selling of Indian equities
- The Indian Rupee slumps against the US Dollar as FIIs have sold a significant amount of Indian equities so far in July.
- Washington signed trade deals with Japan and the Philippines.
- US officials are scheduled to visit India for the sixth round of trade talks in August.
The Indian Rupee (INR) declines to its lowest level in a month against the US Dollar (USD) at open on Wednesday. The USD/INR pair jumps to near 86.55 even as the US Dollar underperforms its Group of Seven (G7) peers, suggesting significant weakness in the Indian Rupee.
At the time of writing, the US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, trades at a feeble level near the two-week low around 97.40 posted on Tuesday.
The USD/INR pair extends its winning streak for the fifth trading day on Wednesday as Foreign Institutional Investors (FIIs) continue to pare investments in Indian equity markets.
So far this month, FIIs have sold Rs. 22,185.90 crores worth of equity shares. On Tuesday, the selling figure from FIIs was Rs. 22,185.90. Relentless selling by FIIs in Indian equities is driven by moderate growth in India Inc. quarterly earnings and ambiguity over the global trade flow as the United States (US) August 1 tariff deadline looms large.
India’s large-cap companies have posted muted growth in the first quarter of the year. From Oil-to-telecom giant Reliance to leading private sector banks, companies have failed to impress investors. Meanwhile, food delivery and Quick Commerce (QC) platform Eternal has shown impressive revenue growth across all its segments.
Daily digest market movers: Indian Rupee weakens against US Dollar
- The US Dollar trades lower against its peers even as the US has announced that it has added more bilateral deals ahead of the August 1 tariff deadline. US President Donald Trump, on Tuesday, announced through posts on Truth.Social deals have been signed with Japan and the Philippines.
- According to the deal, Washington will receive 15% and 19% tariffs on imports from Japan and the Philippines, respectively. The deal with Japan has been signed at a time when the Japanese economy is facing political risks as Prime Minister Shigeru Ishiba has stated that she will step down by the end of August. This is contrary to her statement that she will continue serving the country after losing control in the upper house of parliament.
- US President Trump said on Tuesday that the deal with Japan will open the door for Washington to trade in products that include cars and trucks, rice, and certain other agricultural products.
- Meanwhile, trade deal with India is not supposed to be finalized before the tariff deadline, as White House officials have stated that they will visit New Delhi for the sixth round of trade talks. The impact of the delay in the US-India trade pact would not be significant on Indian companies, as President Trump has not imposed tariffs on New Delhi.
- In the US, President Trump has criticized Federal Reserve (Fed) Chair Jerome Powell again for not lowering interest rates. "I think he’s done a bad job, but he’s going to be out pretty soon anyway. In eight months, he’ll be out, Trump said at the White House on Tuesday.
- According to the CME FedWatch tool, the probability for the Fed to reduce borrowing rates in the September policy meeting has also reduced to 58.7% from 69.6% seen a month ago. Traders pare Fed dovish bets after the latest Consumer Price Index (CPI) report showed that prices of products that are the largest imports in the US have increased.
- Going forward, investors will focus on the preliminary India-US private Purchasing Managers’ Index (PMI) data for July, which is scheduled to be released on Thursday.
Technical Analysis: USD/INR advances to near 86.60
USD/INR jumps to near 86.60 on Wednesday, the highest level seen in a month. The near-term trend of the pair remains bullish as the 20-day Exponential Moving Average (EMA) slopes higher around 86.11.
The 14-day Relative Strength Index (RSI) jumps to near 60.00. A fresh bullish momentum would emerge if the RSI breaks above that level.
Looking down, the 50-day EMA near 85.85 will act as key support for the major. On the upside, the June 23 high near 87.00 will be a critical 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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