Indian Rupee (INR) remains flat on Tuesday despite the firmer US Dollar (USD). The rising US bond yields and lower bets on rate cuts from the Federal Reserve (Fed) after stronger-than-expected US employment data lift the Greenback for the time being. Nonetheless, the lower crude oil prices and easing political uncertainties surrounding India’s election might support the INR and cap the upside for the pair. Additionally, the Reserve Bank of India (RBI) is likely to intervene in the market to prevent the Indian Rupee from depreciating.
Market players will keep an eye on India’s Consumer Price Index (CPI), which is due on Wednesday. On the US docket, the May CPI will be released ahead of the Fed interest rate decision. After the Fed meeting, the US central bank will update the Summary of Economic Projections (SEP). Any hawkish message from Fed officials is likely to boost the Greenback against its rivals.
The Indian Rupee trades flat on the day. The USD/INR pair keeps the bullish vibe unchanged on the daily timeframe while holding above the descending trend channel upper boundary and the key 100-day Exponential Moving Average (EMA).
In the near term, the extended consolidation phase is likely to continue since the 14-day Relative Strength Index (RSI) hovers lower towards the 50-midline.
Any follow-through buying above 83.55, a high of June 5, will pave the way to 83.72, a high of April 17. Extended gains will see a rally to the 84.00 psychological level.
On the downside, the first downside target is seen at the 83.30–83.35 region, portraying the resistance-turned-support level and the 100-day EMA. A breach of this level will expose the 83.00 round level, followed by 82.78, a low of January 15.
The table below shows the percentage change of US Dollar (USD) against listed major currencies today. US Dollar was the strongest against the Australian Dollar.
USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
USD | -0.05% | -0.04% | 0.04% | 0.21% | 0.11% | 0.09% | 0.01% | |
EUR | 0.04% | -0.02% | 0.09% | 0.28% | 0.17% | 0.14% | 0.05% | |
GBP | 0.06% | 0.02% | 0.10% | 0.27% | 0.17% | 0.17% | 0.06% | |
CAD | -0.03% | -0.08% | -0.08% | 0.19% | 0.08% | 0.06% | -0.03% | |
AUD | -0.23% | -0.27% | -0.27% | -0.18% | -0.10% | -0.12% | -0.22% | |
JPY | -0.12% | -0.16% | -0.17% | -0.07% | 0.12% | -0.03% | -0.12% | |
NZD | -0.09% | -0.16% | -0.18% | -0.05% | 0.12% | 0.00% | -0.09% | |
CHF | 0.00% | -0.05% | -0.06% | 0.04% | 0.20% | 0.10% | 0.10% |
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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