USD/INR holds steady as traders brace for US NFP release
- The Indian Rupee steadies in Friday’s Asian session.
- Recovery in foreign inflows, weaker US Dollar and lower crude oil prices could support the INR.
- The Indian HSBC PMI and US employment data will be the highlights later on Friday.
The Indian Rupee (INR) trades flat on Friday after gaining in the previous session. A robust recovery in local equities could provide some support to the Indian currency. Additionally, the safe haven status of the US Dollar (USD) might be diminished due to concerns about how trade policy may impact growth in the US. This, in turn, might help limit the INR's losses. The fall in crude oil prices could also help the Indian Rupee rebound as India is the world's third-largest oil consumer.
Traders brace for the final readings of India’s HSBC Composite and Services Purchasing Managers Index (PMI), which are due later on Friday. On the US docket, all eyes will be on the US March employment data, including Nonfarm Payrolls (NFP), Unemployment Rate and Average Hourly Earnings. If the reports show a stronger-than-expected outcome, this could boost the Greenback against the INR in the near term.
Indian Rupee flat lines ahead of highly-anticipated US NFP data
- Trump said on Wednesday that he would impose 26% tariffs on imports from India effective from April 9, a component of his comprehensive plan to place duties on all US imports.
- The US ISM Services Purchasing Managers Index (PMI) eased to 50.8 in March from 53.5 in February. This reading came in lower than the estimation of 53.0.
- Fed Vice Chair Philip Jefferson said late Thursday that interest rates remain well positioned despite a high degree of uncertainty in the economic outlook. Jefferson added that there is no need to be in a hurry on policy rate adjustments.
- Fed Governor Lisa Cook noted that the US central bank can take its time to assess a highly unsettled environment before moving interest rates again, amid risks inflation could worsen due to tariffs, per Reuters.
- Short-term interest-rate futures are now pricing in nearly 70% odds of a Fed rate cut in the June meeting, up from about 60% before the tariffs were announced, according to the CME FedWatch tool.
USD/INR’s bearish bias lingers despite mild recovery
The Indian Rupee trades on a flat note on the day. The USD/INR pair paints a negative picture on the daily chart as the price remains capped below the key 100-day Exponential Moving Average (EMA). Nonetheless, the 14-day Relative Strength Index (RSI) reaches oversold territory below the 30.00 mark, suggesting that a temporary recovery or further consolidation cannot be ruled out in the near term.
In the bearish case, the low of April 3 at 85.20 acts as an initial support level for USD/INR. Further south, the next contention level is seen at the 85.00 psychological level, followed by 84.84, the low of December 19.
On the bright side, the immediate resistance level to watch is 85.87, the 100-day EMA. Sustained trading above the mentioned level could pave the way to 86.48, the low of February 21, en route to 87.00, the round mark.
Indian Rupee FAQs
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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