Indian Rupee strengthens on weaker US Dollar, traders await Fed rate decision
29.07.2024, 03:36

Indian Rupee strengthens on weaker US Dollar, traders await Fed rate decision

  • The Indian Rupee recovers on the weaker Greenback in Monday’s Asian session. 
  • Renewed US Dollar demand, India’s foreign outflows and geopolitical risks might weigh on the INR. 
  • The Fed is widely expected to keep rates unchanged at its July 30-31 meeting. 

The Indian Rupee (INR) gains traction on Monday amid the softer US Dollar (USD). The upside for INR is likely to be limited after reaching an all-time low last week, pressured by continuous USD demand from oil importers and India’s outflows from local equities. Additionally, the rising geopolitical risks in the Middle East might boost the safe-haven Greenback ahead of the key US events this week. On the other hand, traders expect the Reserve Bank of India (RBI) to continue intervening in the foreign exchange (FX) market to limit volatility. This, in turn, might cap the pair’s upside in the near term. 

The US Federal Reserve (Fed) Interest Rate Decision will take centre stage on Wednesday, with no change in rate expected. Investors will take cues from Fed Chair Jerome Powell's remarks to gauge the future path of US interest rates. Any dovish comments from the Fed officials or hope of a rate cut by the Fed in September might drag the Greenback lower. Later this week, the attention will shift to the Indian HSBC Manufacturing PMI on Thursday and the US Nonfarm Payrolls for July on Friday.

Daily Digest Market Movers: Indian Rupee rebounds despite multiple headwinds

  • The Dollar-Rupee pair is likely to move higher steadily with support "shifting upward to 83.45 while getting resisted at 83.85," said Dilip Parmar, a foreign exchange research analyst at HDFC Securities.
  • Foreign investors have net sold about $1 billion worth of Indian equities since July 23, when the Indian government proposed to raise taxes on profits from equity investments and on equity derivative transactions.
  • The Golan Heights attack on Saturday has raised worries about a war between Israel and Hezbollah. Israel accuses Hezbollah of carrying out the strike on a football pitch, which killed at least 12 people, including children, and it has promised to react. However, Hezbollah denies being involved in the attack, per the BBC. 
  • The US Personal Consumption Expenditures (PCE) Price Index rose rose 2.5% on a yearly basis in June, compared to 2.6% in May, in line with the market consensus. On a monthly basis, the PCE Price Index increased 0.1% after staying unchanged in May.
  • The US Core PCE inflation, which excludes volatile food and energy prices, climbed to 2.6% in the same period, matching May's increase and coming in above the estimation of 2.5% The core PCE Price Index increased 0.2% MoM in June, compared to 0.1% in May. 
  • The University of Michigan Consumer Sentiment Index jumped to 66.4 in July, better than the estimation and the previous reading of 66. 

Technical analysis: Indian Rupee’s bearish picture remains intact 

Indian Rupee trades on a stronger note on the day. The USD/INR pair keeps the bullish vibe unchanged as the chart shows an uptrend line, while the price holds above the key 100-day Exponential Moving Average (EMA) on the daily chart. The 14-day Relative Strength Index (RSI) stands above the midline near 58.90, suggesting the long-term trend appears to be bullish. 

Bullish candlesticks above the all-time high of 83.85 could draw in enough buyers to push USD/INR up to the 84.00 psychological level. 

The initial support level could be found at the uptrend line around 83.70. If bearish momentum continues, look for further downside towards 83.51, a low of July 12. The next potential support level is seen at 83.44, 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   -0.10% -0.12% -0.07% -0.14% -0.39% -0.14% -0.18%
EUR 0.08%   -0.03% 0.04% 0.01% -0.23% 0.02% -0.08%
GBP 0.11% 0.03%   0.07% 0.02% -0.24% 0.01% -0.06%
CAD 0.05% -0.04% -0.08%   -0.05% -0.31% -0.02% -0.13%
AUD 0.09% -0.03% -0.03% 0.04%   -0.27% -0.02% -0.11%
JPY 0.31% 0.25% 0.23% 0.25% 0.38%   0.20% 0.11%
NZD 0.15% 0.04% 0.02% 0.04% 0.06% -0.24%   -0.05%
CHF 0.17% 0.08% 0.06% 0.12% 0.02% -0.18% -0.01%  

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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