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- USD/INR weakens as Fed signals rate cut in September
USD/INR weakens as Fed signals rate cut in September
- The Indian Rupee edges higher in Thursday’s early Asian session.
- India’s outflows, renewed USD demand and higher crude oil prices might undermine the INR, while Fed’s dovish could limit losses.
- Market players await the Indian July HSBC Manufacturing PMI on Thursday for fresh impetus.
The Indian Rupee (INR) recovers on the decline of the US Dollar (USD) on Thursday. The US Federal Reserve (Fed) decided to keep its interest rates unchanged in the range of 5.25%-5.50% for the eighth time in a row at its July meeting on Wednesday. The dovish stance of Fed Chair Jerome Powell after the policy meeting has undermined the Greenback broadly.
However, significant outflows from Indian equities, persistent USD demand from importers, and fluctuations in the Chinese Yuan might cap the INR’s upside. A rise in crude oil prices amid the Middle East geopolitical tensions is likely to weigh on the local currency as India is the third largest consumer of oil behind the US and China.
Looking ahead, traders will keep an eye on the Indian HSBC Manufacturing Purchasing Managers Index (PMI), which is due on Thursday. On the US docket, the ISM Manufacturing PMI, weekly Initial Jobless Claims, and the final S&P Global Manufacturing PMI will be published later on Thursday.
Daily Digest Market Movers: Indian Rupee remains fragile amid global challenges
- India's Ratings and Research (Ind-Ra) raised its economic growth projection for the current fiscal year to 7.5%, up from its earlier estimate of 7.1%.
- Ind-Ra's revised growth projection is higher than most other estimates, including those from the Reserve Bank of India (7.2%), the Economic Survey (6.5 to 7%), and the International Monetary Fund (7%).
- The final reading of HSBC Manufacturing PMI is estimated to improve to 58.5 in July from the previous reading of 58.3.
- During the press conference, Fed Chair Jerome Powell said that the first interest rate cut could come "as soon as" the Fed's next rate meeting in September if the data "continue to point to kind of the direction we would want to see.”
- Powell further stated that the US central bank will closely monitor the labor market and stay vigilant for signs of a potentially sharp downturn.
- Futures traders are now pricing in a 100% possibility that the central bank will cut interest rates by 25 basis points (bps) in its September meeting, according to CME FedWatch Tool.
Technical analysis: USD/INR keeps the bullish vibe in the longer term
Indian Rupee trades firmer on the day. The longer-term trend of the USD/INR pair remains bullish, with the price holding around the key 100-day Exponential Moving Average (EMA) and being underpinned by the uptrend line since June 3 on the daily chart. The 14-day Relative Strength Index (RSI) stands above the midline near 58.40, suggesting a potential upside for the time being.
The immediate resistance level is located at the all-time high of 83.85. If the price manages to break above this level, it will spur further upside to the 84.00 psychological level.
On the other hand, the initial support level is seen at the uptrend line around 83.70. If the price breaks below this level, it would signal further selling pressure towards 83.51, a low of July 12. Extended losses will pave the way to 83.45, the 100-day EMA.
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 Japanese Yen.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | -0.06% | -0.04% | -0.05% | 0.08% | -0.26% | -0.16% | -0.12% | |
| EUR | 0.05% | 0.03% | 0.01% | 0.13% | -0.19% | -0.10% | -0.06% | |
| GBP | 0.02% | -0.03% | -0.01% | 0.12% | -0.25% | -0.15% | -0.08% | |
| CAD | 0.05% | -0.01% | 0.02% | 0.15% | -0.22% | -0.12% | -0.07% | |
| AUD | -0.05% | -0.12% | -0.09% | -0.11% | -0.33% | -0.23% | -0.19% | |
| JPY | 0.27% | 0.19% | 0.21% | 0.19% | 0.34% | 0.12% | 0.15% | |
| NZD | 0.14% | 0.12% | 0.14% | 0.12% | 0.23% | -0.09% | 0.06% | |
| CHF | 0.12% | 0.05% | 0.08% | 0.07% | 0.21% | -0.15% | -0.05% |
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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