USD/INR seems to extend gains on Wednesday amid US-Iran war
- The Indian Rupee is expected to extend its decline against the US Dollar in the opening session on Wednesday.
- Rising oil prices due to the closure of the Strait of Hormuz are expected to weigh on the Indian Rupee.
- FIIs turned out to be net sellers on the first trading day of the March series.
The USD/INR pair ended Monday’s session 0.7% higher to near 92.00. The pair is expected to open higher on Wednesday, with Indian markets remaining closed on Tuesday due to Holi celebrations, as the US Dollar (USD) extends its gains.
During the press time, the US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, trades 0.4% higher to near 99.00, the highest level seen in almost seven weeks.
US Dollar Price Today
The table below shows the percentage change of US Dollar (USD) against listed major currencies today. US Dollar was the strongest against the New Zealand Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.57% | 0.73% | 0.11% | 0.15% | 0.45% | 0.75% | 0.56% | |
| EUR | -0.57% | 0.16% | -0.48% | -0.43% | -0.13% | 0.18% | -0.01% | |
| GBP | -0.73% | -0.16% | -0.63% | -0.58% | -0.27% | 0.02% | -0.17% | |
| JPY | -0.11% | 0.48% | 0.63% | 0.05% | 0.35% | 0.64% | 0.46% | |
| CAD | -0.15% | 0.43% | 0.58% | -0.05% | 0.30% | 0.59% | 0.41% | |
| AUD | -0.45% | 0.13% | 0.27% | -0.35% | -0.30% | 0.29% | 0.10% | |
| NZD | -0.75% | -0.18% | -0.02% | -0.64% | -0.59% | -0.29% | -0.19% | |
| CHF | -0.56% | 0.00% | 0.17% | -0.46% | -0.41% | -0.10% | 0.19% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the US Dollar from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent USD (base)/JPY (quote).
The US Dollar is surging as its safe-haven demand has increased significantly amid the escalating war between the United States (US), Iran, and Israel.
In retaliation for the killing of Iran’s Supreme Leader, Ayatollah Ali Khamenei, Tehran’s top national security official, Ali Larijani, has vowed to avenge and has rejected the idea of negotiating with the US. As part of retaliation, Tehran has closed the Strait of Hormuz, a sea route from which 20% of global crude oil is shipped, and launched a series of drone attacks on the US Embassy in Riyadh.
On the domestic front, easing dovish Federal Reserve (Fed) expectations for the June policy meeting have also offered some strength to the US Dollar. The CME FedWatch tool shows that the probability of the Fed holding interest rates steady in the June policy meeting has increased to 53.5% from 42.7% seen on Friday.
Fed dovish prospects have receded after the release of the ISM Manufacturing PMI data on Monday, which signaled a sharp increase in factory-level inflation. The report showed that the sub-component Prices Paid – which tracks changes in prices paid for inputs such as labor and raw materials – soared to 70.5 against estimates of 59.5 and the previous reading of 59.0.
Rising oil prices due to the Middle East war are expected to weigh on the Indian Rupee (INR), given that the Indian economy relies heavily on imports of oil to meet its energy needs.
Meanwhile, the outflow of foreign funds from the Indian stock market on the first trading day of March is expected to elevate to burden the Indian Rupee. The data showed on Monday that Foreign Institutional Investors (FIIs) offloaded their stake worth Rs. 3,295.64 crore, according to NSE.
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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