Market news
28.06.2024, 05:02

USD/INR depreciates as Indian Rupee receives support on index inclusion

  • The Indian Rupee extends gains due to expected foreign inflows on bonds joining J.P. Morgan’s Emerging Market Bond Index.
  • Indian equity markets appreciate due to the return of foreign institutional investors and growing purchases in index heavyweights.
  • US Core PCE to be released on Friday; expected to decrease YoY to 2.6% from the previous 2.8%.

The Indian Rupee (INR) extends its gains for the second successive session during the Asian hours, which could be attributed to the expectations of foreign inflows. Indian bonds are set to enter the JP Morgan Emerging Market (EM) Bond Index on Friday.

Indian equity markets extend gains due to the return of foreign institutional investors and growing purchases in index heavyweights, amidst a solid economy and prospects of policy continuity.

Indian Rupee traders would likely observe key economic data on Friday, including the Federal Fiscal Deficit for May and FX Reserves for the week ending June 17.

On the US Dollar’s (USD) front, Core PCE Price Index inflation is projected to decrease YoY to 2.6% from the previous 2.8%. This data is seen as the Federal Reserve's (Fed) preferred inflation gauge.

Daily Digest Market Movers: Indian Rupee extends gains on foreign inflows

  • Foreign investors have already invested approximately $10 billion into the securities eligible to join JPMorgan’s index, according to Business Standard. Meanwhile, Goldman Sachs anticipates at least $30 billion more in inflows in the coming months as India’s weighting on the index steadily rises to 10%.
  • Federal Reserve (Fed) Board of Governors member Michelle Bowman noted on Thursday that she is still not ready to support a central bank rate cut with inflation pressures still elevated. Bowman said, adding “We are still not yet at the point where it is appropriate to lower the policy rate, and I continue to see a number of upside risks to inflation,” per Reuters.
  • US Gross Domestic Product Annualized expanded by 1.4% in Q1, slightly higher than the previous reading of 1.3%, but continuing to point to the lowest growth since the contractions in the first half of 2022.
  • US Initial Jobless Claims showed on Thursday that the number of people claiming unemployment benefits fell to 233,000 in the week ending June 21, below market expectations of 236,000. The claim count fell for a second consecutive week since hitting the 10-month high of 243,000 earlier in June.
  • The first US presidential debate between President Joe Biden and Republican Presidential Nominee Donald Trump began on CNN News. Biden acknowledged that “inflation had driven prices substantially higher than at the start of his term but said he deserves credit for putting 'things back together again' following the coronavirus pandemic.” In response, Trump condemned elevated inflation levels. He suggested that tariffs would decrease deficits and urged scrutiny of countries like China, per Reuters.
  • 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.
  • On Tuesday, RBI Governor Shaktikanta Das said that India is on the verge of a major structural shift in its growth trajectory, moving towards sustained 8% GDP growth. Das attributes this growth to several key drivers, including structural reforms such as the Goods and Services Tax (GST), reported by The Economic Times.

Technical analysis: USD/INR falls below 83.50

The USD/INR trades around 83.40 on Friday. The analysis of the daily chart shows a broadening pattern, suggesting a potential correction before a downward movement. The 14-day Relative Strength Index (RSI) is below the 50 level, indicating a bearish bias.

The USD/INR pair tests the immediate support at the 50-day Exponential Moving Average (EMA) of 83.40. A break below this level could potentially strengthen the bearish bias, which could lead the pair toward the lower boundary of the broadening pattern, around the 83.30 level.

Resistance on the upside is anticipated near the upper boundary of the broadening formation, around 83.70, followed by the psychological level of 84.00.

USD/INR: Daily Chart

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 Indian Rupee.

  USD EUR GBP JPY CAD AUD NZD INR
USD   0.16% 0.13% 0.16% 0.22% 0.36% 0.37% 0.03%
EUR -0.16%   -0.03% 0.00% 0.06% 0.20% 0.21% -0.13%
GBP -0.13% 0.03%   0.00% 0.07% 0.22% 0.24% -0.11%
JPY -0.16% 0.00% 0.00%   0.03% 0.19% 0.19% -0.13%
CAD -0.22% -0.06% -0.07% -0.03%   0.13% 0.15% -0.18%
AUD -0.36% -0.20% -0.22% -0.19% -0.13%   0.01% -0.33%
NZD -0.37% -0.21% -0.24% -0.19% -0.15% -0.01%   -0.34%
INR -0.03% 0.13% 0.11% 0.13% 0.18% 0.33% 0.34%  

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).

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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