Market news
25.06.2024, 04:21

USD/INR loses momentum amid India’s foreign inflow hopes

  • The Indian Rupee drifts higher on the weaker US dollar on Tuesday. 
  • India’s inflows might lift the INR, while the weakness in major Asian peers, higher oil prices might cap the upside. 
  • Traders await US Chicago Fed National Activity Index, Consumer Confidence and the speech from Fed’s Cook and Bowman on Tuesday. 

The Indian Rupee (INR) gains traction on Tuesday, supported by the softer US Dollar (USD) across the board. The significant inflows related to the inclusion of Indian bonds in the JPMorgan emerging market debt index could support the INR. However, the upside of the Indian Rupee might be limited by a decline in major Asian currencies like the Chinese Yuan and the Japanese Yen. Additionally, the rise in crude oil prices amid the hope for strong summer driving demand could weigh on the INR as India is the world’s third-largest oil consumer after the United States (US) and China. 

The US Chicago Fed National Activity Index for May and Consumer Confidence will be released on Tuesday. Also, the Fed’s Lisa Cook and Michelle Bowman are set to speak. Investors will shift their attention to the key US economic data later this week. The final reading of US Gross Domestic Product (GDP) for the first quarter (Q1) is due on Thursday, and the Personal Consumption Expenditure (PCE) Price Index for May will be published on Friday. 

Daily Digest Market Movers: Indian Rupee remains strong, supported by optimistic economic outlook

  • The S&P Global Ratings retained its growth forecast for India at 6.8% for FY25, citing high interest rates and government spending boosting demand in the non-agricultural sectors.
  • India is expected to become a $4 trillion economy in 2025, surpassing Japan by early next fiscal year to become the world's fourth largest economy, according to Indian Economic Advisory Council to the Prime Minister (EAC-PM) member Sanjeev Sanyal.
  • San Francisco Fed President Mary Daly said that the Fed must continue the work of fully restoring price stability without a painful disruption to the economy. Daly added that while the central bank still has "more work to do" on bringing inflation down, inflation is not the only risk they face.
  • The final reading of the US headline and Core Personal Consumption Expenditures (PCE) Price Index is estimated to show a rise of 2.6% on a yearly basis in May.
  • The financial markets have priced in a 66% probability of a Fed rate cut in September, increasing from 59.5% at the end of last week, according to the CME FedWatch Tool.

Technical analysis: USD/INR might see further consolidation in the near term

The Indian Rupee trades firmly on Tuesday. The USD/INR pair maintains the constructive picture on the daily chart beyond the key 100-day Exponential Moving Average (EMA). However, the 14-day Relative Strength Index (RSI) hovers around the 50-midline, indicating that further consolidation in the near term looks favorable. 

A move to the all-time high of 83.75 would increase the possibility of an upleg to the 84.00 psychological level. Further gains to 84.50 are also on the table if USD/INR gains bullish momentum beyond the mentioned level. 

On the downside, extended losses may extend its downswing to the potential support level at the 83.30-83.35 region, representing the confluence of the resistance-turned-support level and the 100-day EMA. Further south, the next downside barrier is located at the 83.00 round figure. 
 

US Dollar price today

The table below shows the percentage change of US Dollar (USD) against listed major currencies today. US Dollar was the weakest against the Swiss Franc.

  USD EUR GBP CAD AUD JPY NZD CHF
USD   -0.05% -0.10% -0.12% -0.09% -0.12% -0.04% -0.16%
EUR 0.05%   -0.08% -0.06% -0.03% -0.06% 0.01% -0.09%
GBP 0.11% 0.06%   -0.01% 0.02% 0.00% 0.07% -0.03%
CAD 0.12% 0.07% 0.01%   0.03% 0.00% 0.08% -0.04%
AUD 0.09% 0.03% -0.02% -0.04%   -0.02% 0.04% -0.07%
JPY 0.13% 0.08% 0.02% 0.00% -0.02%   0.06% -0.02%
NZD 0.07% 0.01% -0.04% -0.08% -0.02% -0.04%   -0.09%
CHF 0.15% 0.09% 0.03% 0.01% 0.04% 0.04% 0.09%  

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 Euro from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent EUR (base)/JPY (quote).

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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