Indian Rupee (INR) recovery loses steam on Thursday. The higher Treasury bond yields and a rebound of oil prices exert some selling pressure on the INR as the currency is still driven by global factors and market sentiment. That being said, a speech by Israel's Prime Minister Benjamin Netanyahu has fueled safe-haven flows and benefits to the US Dollar (USD). Netanyahu warned that Israel is in a battle for its existence and is preparing a ground invasion of Gaza, but he declined to provide any specifics on the timing or other details regarding the operation.
The investors’ attention will be India's Balance of Payments for the second quarter (Q2). Furthermore, the preliminary estimate of the US Q3 Gross Domestic Product (GDP) will be in the spotlight on Thursday. The growth number is expected to show a 4.2% expansion.
The Indian Rupee weakens on the day. The USD/INR upward bias remains intact as the pair holds above the key 100- and 200-day Exponential Moving Averages (EMA) on the daily chart. The immediate upside barrier to watch is seen at 83.30 (high of October 4). Further north, the all-time high around 83.45 will be the next resistance, followed by a psychological round mark at 84.00. On the downside, a breach of the 83.00 mark could drag the pair towards 82.82 (low of September 12), en route to 82.65 (low of August 4).
The table below shows the percentage change of US Dollar (USD) against listed major currencies in the last 7 days. US Dollar was the strongest against the New Zealand Dollar.
USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
USD | -0.06% | 0.51% | 0.72% | 0.85% | 0.45% | 1.33% | -0.09% | |
EUR | 0.05% | 0.58% | 0.78% | 0.91% | 0.51% | 1.39% | -0.03% | |
GBP | -0.52% | -0.58% | 0.21% | 0.35% | -0.06% | 0.84% | -0.61% | |
CAD | -0.73% | -0.78% | -0.19% | 0.11% | -0.26% | 0.61% | -0.82% | |
AUD | -0.89% | -0.91% | -0.34% | -0.13% | -0.41% | 0.48% | -0.95% | |
JPY | -0.43% | -0.53% | 0.05% | 0.26% | 0.41% | 0.91% | -0.56% | |
NZD | -1.35% | -1.42% | -0.85% | -0.62% | -0.48% | -0.86% | -1.41% | |
CHF | 0.09% | 0.05% | 0.60% | 0.82% | 0.97% | 0.54% | 1.41% |
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).
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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