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- USD/INR strengthens ahead of Fed Chair Powell’s second testimony
USD/INR strengthens ahead of Fed Chair Powell’s second testimony
- The Indian Rupee edges lower in Wednesday’s Asian session.
- The renewed US Dollar demand might weigh on the local currency, while sustained Indian foreign inflows could underpin the INR.
- Fed Chair Jerome Powell’s second testimony will be in the spotlight on Wednesday.
The Indian Rupee (INR) trades on a weaker note on Wednesday amid the modest rebound of the US Dollar (USD). The persistent Greenback demand from local importers might continue to limit the local currency’s gains. However, sustained Indian foreign inflows, a positive economic outlook, and the fastest macroeconomic growth among large economies might all contribute to the INR's upside.
Traders will focus on the second semi-annual testimony by Federal Reserve (Fed) Chair Jerome Powell on Wednesday. The attention will shift to the US Consumer Price Index (CPI) inflation data on Thursday. The US CPI is projected to show an increase of 3.1% YoY in June, while core inflation is projected to remain steady at 3.4% YoY. Any dovish comments from the Fed’s Powell or signs of softer inflation in the US might exert some selling pressure on the Greenback.
Daily Digest Market Movers: Indian Rupee weakens despite India’s optimistic outlook
- The Reserve Bank of India said on Monday that the country added 46.7 million jobs in the fiscal year ended March, the highest since 1981-1982.
- India’s central bank added $5.6 billion in Gold reserves in the June quarter, with foreign currency assets increasing by $1.9 billion and the value of gold in reserves rising by $3.8 billion. As of June 28, India's foreign currency reserves were at $652 billion.
- Fed Chair Jerome Powell said in testimony Tuesday to Congress that the case for interest rate cuts is becoming stronger as the most recent inflation data showed some modest further progress.
- Powell added that "more good data" could open the door to interest rate cuts. He noted that holding interest rates too high for too long could jeopardize economic growth.
- Powell's remarks have helped push up the chance of a September rate cut by the Fed to above 75%, up from 71% before the US employment data last Friday, according to the CME's FedWatch tool.
Technical analysis: USD/INR remains in consolidative mode in the near term
The Indian Rupee trades softer on the day. The bullish bias of the USD/INR pair continues as the pair holds above the key 100-day Exponential Moving Average (EMA) on the daily chart.
In the shorter term, further consolidation looks favorable as the pair has remained stuck within a familiar trading range since March 21. Additionally, the 14-day Relative Strength Index (RSI) showed neutral momentum, hovering around the 50-midline.
Sustained upside momentum could lift USD/INR to 83.65, the upper boundary of the trading range. A break above this level could attract some buying interest to the all-time high of 83.75 en route to the 84.00 psychological barrier.
On the flip side, the 100-day EMA at 83.36 acts as an initial support level for the pair. Extended losses will expose the 83.00 round mark, followed by 82.82, a low of January 12.
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 | CAD | AUD | JPY | NZD | CHF | |
| USD | 0.00% | -0.01% | 0.02% | 0.04% | 0.12% | 0.42% | 0.04% | |
| EUR | 0.00% | -0.01% | 0.01% | 0.05% | 0.11% | 0.41% | 0.04% | |
| GBP | -0.01% | 0.00% | 0.02% | 0.05% | 0.12% | 0.43% | 0.05% | |
| CAD | -0.02% | -0.01% | -0.01% | 0.03% | 0.11% | 0.48% | 0.03% | |
| AUD | -0.04% | -0.06% | -0.05% | -0.04% | 0.08% | 0.38% | 0.00% | |
| JPY | -0.12% | -0.10% | -0.11% | -0.10% | -0.04% | 0.31% | -0.07% | |
| NZD | -0.42% | -0.42% | -0.43% | -0.41% | -0.38% | -0.31% | -0.38% | |
| CHF | -0.05% | -0.04% | -0.05% | -0.03% | 0.00% | 0.07% | 0.38% |
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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