USD/INR extends decline ahead of India’s PMI data
- The Indian Rupee gains ground amid the weaker US Dollar in Monday’s early Asian session.
- Indian bonds were included in the JPMorgan Emerging Market Debt Index, boosting India’s foreign inflows and the INR.
- India’s HSBC Manufacturing PMI and US ISM Manufacturing reports will be in the spotlight on Monday.
The Indian Rupee (INR) strengthens on Monday on the softer US Dollar (USD). The foreign inflows by the inclusion of India's bonds into the JPMorgan emerging market debt index are expected to trigger billions of dollars into the world's fifth-largest economy, boosting the INR. Furthermore, the softer US Personal Consumption Expenditures (PCE) Price Index for May, which has its lowest annual rate in more than three years, weighs on the Greenback and acts as a headwind against the pair.
Meanwhile, further gains in crude oil prices might exert some selling pressure on the pair, as India is the world’s third-largest oil consumer after the United States (US) and China. On Monday, investors will focus on India’s HSBC Manufacturing PMI, which is estimated to improve from 57.5 to 58.5. Any signs of India’s weakness could exert some selling pressure on the Indian Rupee. On the US docket, ISM Manufacturing for June will be published.
Daily Digest Market Movers: Indian Rupee remains firm amid strong macroeconomic fundamentals
- Foreign currency market indicators had pointed to inflows, most likely owing to passive funds purchasing bonds, but many market players said inflows were lower than expected. Traders estimated inflows of up to $2 billion spread over Thursday and Friday.
- India’s equity benchmarks, the Sensex and the Nifty 50, ended the first half of the current calendar year on a positive note. The Nifty 50 rose 10.5%, while the Sensex gained 9.4% in the first six months of 2024, hitting record highs of 24,174 and 79,671.58, respectively.
- The US Personal Consumption Expenditures (PCE) Price Index increased 2.6% YoY in May, compared to 2.7% in April. This figure came in line with the market expectations. The core PCE inflation rose 2.6% YoY in May from 2.8% in April, which is in line with the estimation.
- San Francisco Fed President Mary Daly said on Friday that monetary policy is working, but it’s too early to tell when it will be appropriate to cut the interest rate. Daly further stated, "If inflation stays sticky or comes down slowly, rates would need to be higher for longer.”
- The US ISM Purchasing Managers Index (PMI) is estimated to improve to 49.0 in June from 48.7 in May.
Technical analysis: USD/INR might face some sell-off or consolidation in the near term
The Indian Rupee trades with mild gains on the day. The bullish outlook of the USD/INR pair remains intact on the daily timeframe as the pair holds above the key 100-day Exponential Moving Average (EMA). However, USD/INR could resume its downside journey if the pair crosses below the 100-day EMA. Additionally, the 14-day Relative Strength Index (RSI) stands below the 50-midline, indicating that further downside or consolidation cannot be ruled out.
Extended gains above 83.65, a high of June 26, will see a rally to the all-time high of 83.75. Any follow-through buying above this level will pave the way to the 84.00 psychological level.
On the other hand, the key support level for the pair is seen at the 83.30-83.35 region, the 100-day EMA. The additional downside level will expose the 83.00 round figure.
US Dollar price today
The table below shows the percentage change of US Dollar (USD) against listed major currencies today. US Dollar was the weakest against the Euro.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | -0.15% | -0.10% | -0.01% | 0.04% | -0.01% | -0.04% | -0.13% | |
| EUR | 0.14% | 0.05% | 0.13% | 0.20% | 0.16% | 0.12% | 0.02% | |
| GBP | 0.09% | -0.07% | 0.08% | 0.14% | 0.10% | 0.06% | -0.04% | |
| CAD | 0.01% | -0.16% | -0.09% | 0.06% | 0.03% | -0.01% | -0.12% | |
| AUD | -0.04% | -0.20% | -0.14% | -0.06% | -0.04% | -0.08% | -0.18% | |
| JPY | 0.00% | -0.16% | -0.10% | 0.01% | 0.06% | -0.02% | -0.15% | |
| NZD | 0.04% | -0.12% | -0.06% | 0.01% | 0.08% | 0.04% | -0.09% | |
| CHF | 0.13% | -0.02% | 0.04% | 0.12% | 0.18% | 0.14% | 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).
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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