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- USD/INR weakens on Indian equity inflows, traders await US PCE data
USD/INR weakens on Indian equity inflows, traders await US PCE data
- The Indian Rupee strengthens in Friday’s Asian session.
- A positive trend in Indian equities supports the INR, while higher crude oil prices might cap its upside.
- The Indian GDP Quarterly for Q1 and US PCE inflation data will take center stage on Friday.
The Indian Rupee (INR) edges higher on Friday despite the stronger US Dollar. India's boosted weight in the MSCI Emerging Market Index could lead to significant foreign investment, stabilizing the INR in the near term. However, the recovery of crude oil prices might cap the upside for the local currency as India is the world’s third-biggest oil importer and consumer.
The Indian GDP Quarterly for the first quarter of fiscal 2024-25 (FY25) is due on Friday, which is estimated to grow 6.9% YoY in Q1. On the US docket, the Personal Consumption Expenditure (PCE) inflation data will be in the spotlight as it could offer some hints as to whether the Fed will implement a 25 or 50 basis points (bps) rate cut at the upcoming September meeting.
Daily Digest Market Movers: Indian Rupee is influenced by domestic equity inflows and global factors
- Indian equities' increased weightage in MSCI's emerging market index, effective Friday, is expected to attract as much as $3 billion in inflows, according to Nuvama Alternative and Quantitative Research.
- The US annualized Gross Domestic Product (GDP) growth for the second quarter (Q2) was revised higher to 3.0% from 2.8% in the initial estimate, better than the 2.8% estimated, according to the Bureau of Economic Analysis (BEA) on Thursday.
- The number of Americans filing new applications for jobless benefits for the week ending August 24 declined to 231K from 233K in the previous week. This figure was below the consensus of 232K.
- Atlanta Fed President Raphael Bostic said on Thursday that there is still a distance to go on inflation, adding that the Fed should wait for more employment and inflation reports data before cutting rates.
- According to the CME FedWatch Tool, the rate futures markets are now pricing in a nearly 66% chance of a 25 basis points (bps) rate cut in September, but the odds of a deeper rate cut stands at 34%, down from 36.5% before the US GDP data.
Technical Analysis: USD/INR’s broader trend remains constructive
The Indian Rupee trades stronger on the day. The USD/INR pair faced a rejection from the 84.00 barrier on Wednesday, but the bullish outlook remains intact as the pair is above the key 100-day Exponential Moving Average (EMA) on the daily timeframe. However, further consolidation in the near term cannot be ruled out as the 14-day Relative Strength Index (RSI) hovers around the midline, indicating the neutral momentum for USD/INR.
The ascending trendline and psychological level of 84.00 appear to be a tough nut to crack for the pair. Sustained bullish momentum will see a rally to the record high of 84.24 en route to 84.50.
On the flip side, the first downside target is located near the low of August 20 at 83.77. Any follow-through selling will see a drop to the 100-day EMA at 83.61.
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 | 0.04% | 0.00% | -0.02% | -0.09% | -0.12% | -0.06% | 0.04% | |
| EUR | -0.04% | -0.04% | -0.07% | -0.13% | -0.16% | -0.10% | -0.01% | |
| GBP | 0.00% | 0.04% | -0.05% | -0.10% | -0.12% | -0.08% | 0.04% | |
| CAD | 0.02% | 0.07% | 0.04% | -0.06% | -0.10% | -0.02% | 0.07% | |
| AUD | 0.09% | 0.13% | 0.09% | 0.06% | -0.03% | 0.02% | 0.12% | |
| JPY | 0.12% | 0.16% | 0.13% | 0.08% | 0.03% | 0.05% | 0.15% | |
| NZD | 0.05% | 0.11% | 0.06% | 0.02% | -0.03% | -0.06% | 0.10% | |
| CHF | -0.04% | 0.00% | -0.04% | -0.08% | -0.14% | -0.16% | -0.10% |
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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