The Indian Rupee (INR) gains traction on Friday. Traders increasingly expect the US Federal Reserve (Fed) to cut interest rates in September, which continue undermining the US Dollar (USD). Furthermore, the likely intervention by the Reserve Bank of India (RBI) could prevent the local currency from depreciating.
Nonetheless, further rebound of crude oil prices might exert some selling pressure on the INR as India is the world's third-biggest oil importer and consumer. The weakness in its Asian peers and India’s foreign outflows might contribute to the Indian Rupee’s downside. In the absence of any top-tier data releases from India and the US on Friday, traders will focus on risk sentiment and the USD dynamic for the time being.
Indian Rupee trades firmer on the day. According to the daily chart, the bullish outlook for the USD/INR pair remains in play, with the price holding above the key 100-day Exponential Moving Average (EMA) and the uptrend line since June 3. The 14-day Relative Strength Index (RSI) reflects ongoing bullish strength as it stands above the midline near 65.80.
The first upside target for USD/INR emerges at the 84.00 psychological barrier. Extended gains could pave the way to the all-time high of 84.24. A bullish breakout above this level could see a rally to 84.50.
On the flip side, the uptrend line around 83.80 acts as a key contention level for the pair. A breach of the mentioned level could drag the pair lower to the 100-day EMA at 83.51.
The table below shows the percentage change of US Dollar (USD) against listed major currencies today. US Dollar was the weakest against the New Zealand Dollar.
USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
USD | -0.07% | -0.09% | -0.05% | -0.08% | -0.18% | -0.37% | -0.07% | |
EUR | 0.07% | -0.02% | 0.02% | -0.01% | -0.09% | -0.29% | 0.01% | |
GBP | 0.09% | 0.01% | 0.03% | 0.00% | -0.07% | -0.29% | 0.03% | |
CAD | 0.06% | -0.01% | -0.04% | -0.02% | -0.09% | -0.30% | 0.00% | |
AUD | 0.08% | 0.00% | -0.01% | 0.03% | -0.10% | -0.30% | 0.01% | |
JPY | 0.17% | 0.09% | 0.08% | 0.10% | 0.08% | -0.19% | 0.12% | |
NZD | 0.38% | 0.30% | 0.28% | 0.33% | 0.30% | 0.20% | 0.31% | |
CHF | 0.06% | -0.02% | -0.04% | 0.00% | -0.03% | -0.12% | -0.31% |
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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