Indian Rupee (INR) loses momentum on Wednesday. The rise in crude oil prices to nearly a five-month high has exerted some selling pressure on the INR, as India is the world's second-biggest oil importer. The escalating geopolitical tensions in the Middle East and Russia-Ukraine might further boost crude oil prices and drag the INR lower. However, the robust Indian economic data and optimistic outlook for the Indian economy might limit the INR’s downside.
The final reading of Indian HSBC Services PMI for March will be due on Thursday. On Friday, Reserve Bank of India (RBI) Governor Shaktikanta Das will unveil the first monetary policy of the financial year 2024–25. According to a majority of analysts, the Indian central bank is likely to keep its key repo rate unchanged at 6.50% at its April meeting and maintain its stance of withdrawal of accommodation. On the US docket, the ADP Employment Change and the ISM Services PMI will be published on Wednesday. On Friday, the Nonfarm Payrolls (NFP) will be released.
Indian Rupee trades on a weaker note on the day. The bullish outlook of USD/INR remains unchanged since the pair has risen above a nearly four-month-old descending trend channel since last week.
In the near term, USD/INR is above the key 100-day Exponential Moving Average (EMA) on the daily timeframe. The 14-day Relative Strength Index hovers around 64.15 in the bullish territory, indicating that further upside looks favorable for the pair.
Any follow-through buying above a high of November 10, 2023, at 83.49 may extend its upswing to an all-time high of 83.70. The additional upside filter to watch is the 84.00 psychological level. In case of sustained trading below the support level near a high of March 21 at 83.20, the pair could fall back to 83.00 (round mark, the 100-day EMA), followed by a low of March 14 at 82.80.
The table below shows the percentage change of US Dollar (USD) against listed major currencies today. US Dollar was the strongest against the Euro.
USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
USD | -0.05% | 0.03% | 0.04% | 0.07% | 0.03% | 0.18% | 0.05% | |
EUR | 0.06% | 0.09% | 0.11% | 0.15% | 0.09% | 0.23% | 0.10% | |
GBP | -0.04% | -0.09% | 0.00% | 0.04% | -0.02% | 0.13% | 0.01% | |
CAD | -0.05% | -0.10% | -0.02% | 0.02% | -0.02% | 0.14% | 0.00% | |
AUD | -0.08% | -0.13% | -0.05% | -0.03% | -0.04% | 0.10% | -0.02% | |
JPY | -0.02% | -0.08% | -0.02% | 0.02% | 0.06% | 0.15% | 0.03% | |
NZD | -0.18% | -0.23% | -0.15% | -0.14% | -0.10% | -0.16% | -0.13% | |
CHF | -0.05% | -0.10% | -0.02% | 0.00% | 0.04% | -0.02% | 0.13% |
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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