Indian Rupee (INR) loses ground on Tuesday amid the US Dollar (USD) demand from state-run and foreign banks. Nirmala Sitharaman, India's finance minister, said on Monday that the government is keeping a close eye on the exchange rate, especially following the Indian rupee's decline.
India’s finance minister said that the country is well-positioned in terms of macroeconomic fundamentals. However, she highlighted the challenges to the economy from external factors, especially declining demand in the advanced economies. Sitharaman further stated that exchange rate fluctuation and high interest rates are also downside risks for the Indian economy.
Investors will keep an eye on India’s Gross Domestic Product (GDP) Quarterly for the second quarter (Q2) on Thursday. Furthermore, the Indian Fiscal Deficit data, RBI Monetary and Credit Information Review, and Infrastructure Output will be due. Meanwhile, the last phase of state elections on Thursday remains in focus as a change in government might result in modifications to current policies, which have an impact on investors.
The Indian Rupee trades weaker on the day. The USD/INR pair continues to trade in a wider range of 82.80–83.40 since September. The shorter-term bullish outlook of USD/INR remains intact as the pair holds above the key 100-day Exponential Moving Average (EMA) with an upward slope on the daily chart. This upward momentum is reinforced by the 14-day Relative Strength Index (RSI), which is above the 50.0 midline, indicating the path of least resistance is to the upside.
That being said, the first upside barrier for USD/INR will emerge at the upper boundary of the trading range at 83.40. A decisive break above 83.40 will see the additional upside filter at the year-to-date (YTD) high of 83.47, followed by a psychological round figure of 84.00.
On the other hand, the critical support level is seen at the 83.00 psychological mark. Any follow-through selling below 83.00 will pave the way to the confluence of the lower limit of the trading range and a low of September 12 at 82.80. Further south, the next downside target to watch is a low of August 11 at 82.60.
The table below shows the percentage change of Australian Dollar (AUD) against listed major currencies today. Australian Dollar was the strongest against the Swiss Franc.
USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
USD | 0.00% | -0.03% | -0.04% | -0.14% | -0.24% | -0.03% | 0.00% | |
EUR | -0.02% | -0.03% | -0.04% | -0.14% | -0.23% | -0.03% | -0.01% | |
GBP | 0.03% | 0.04% | 0.01% | -0.10% | -0.20% | 0.00% | 0.04% | |
CAD | 0.02% | 0.03% | 0.00% | -0.11% | -0.20% | 0.00% | 0.02% | |
AUD | 0.12% | 0.13% | 0.11% | 0.08% | -0.12% | 0.11% | 0.17% | |
JPY | 0.22% | 0.24% | 0.20% | 0.19% | 0.08% | 0.19% | 0.23% | |
NZD | 0.03% | 0.04% | 0.00% | -0.01% | -0.11% | -0.20% | 0.05% | |
CHF | -0.01% | 0.00% | -0.03% | -0.03% | -0.14% | -0.25% | -0.02% |
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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