USD/INR struggles to gain ground ahead of Indian Services PMI data
- The Indian Rupee posts modest gains in Wednesday’s Asian session.
- India’s foreign portfolio inflows and lower crude oil prices support the INR.
- Market players await India’s HSBC Services PMI on Wednesday ahead of the FOMC Minutes.
The Indian Rupee (INR) trades with mild gains on Wednesday amid the weaker US Dollar (USD). Foreign portfolio inflows into the equity markets have returned following the post-election outflows, which might boost the Indian Rupee. Additionally, the decline in crude oil prices helps limit the INR’s losses.
Market players are focusing on the final reading of India’s HSBC Services PMI on Wednesday, which is expected to improve to 60.4 in June, up from 60.2 in the previous reading. On the US docket, ADP Employment Change, ISM Services PMI for June, and the FOMC Minutes will be released later on Wednesday. The cautious stance from the Federal Reserve (Fed) Chair might support the USD. Furthermore, any evidence of further improvement in the US economy might lift the Greenback and create a tailwind for USD/INR.
Daily Digest Market Movers: Indian Rupee remains firm amid optimistic Indian economy outlook
- Nomura analysts expect the Indian rupee will rally by 2% by August. "India's post-election calm, portfolio inflows, economic sweet spot and the RBI (Reserve Bank of India) containing FX volatility are supportive factors," said Nomura analysts.
- India's foreign exchange reserves rose by $816 million to $653.711 billion last week, the Reserve Bank of India (RBI) revealed on Friday.
- Fed Chair Jerome Powell stated on Tuesday that US inflation is cooling again after higher readings earlier this year, but he wants to see more evidence before being confident enough to start cutting interest rates.
- Chicago Fed President Austan Goolsbee said that he sees some "warning signs" of economic weakness, and added that the Fed's goal is to bring inflation down without pressuring the labour market.
- US JOLTS Job Openings climbed to 8.14 million in May, followed by the 7.91 million (revised from 8.05 million) openings reported in April. This figure exceeded the forecasts of 7.91 million, US Bureau of Labor Statistics reported on Tuesday.
- Traders are now pricing in a nearly 63% chance for a 25 basis points (bps) rate cut from the Fed in September, up from 59.5% on Monday, according to the CME FedWatch tool.
Technical analysis: USD/INR might stick within the consolidative range in the near term
The Indian Rupee trades stronger on the day. The USD/INR pair remains capped within the familiar trading range on the daily timeframe. The pair maintains the bullish outlook unchanged in the longer term. However, in the near term, further consolidation looks favorable as the 14-day Relative Strength Index (RSI) hovers around the 50-midline, indicating neutral momentum.
Extended gains above 83.65, a high of June 26, would set up the pair for a potential move to the all-time high of 83.75. An upside breakout might attract some buyers to the 84.00 psychological level.
On the flip side, the initial support level for USD/INR will emerge at 83.35, the 100-day EMA. A decisive break below this level will pave the way to the 83.00 round figure, en route to 82.82, a low of January 12.
US Dollar price this week
The table below shows the percentage change of US Dollar (USD) against listed major currencies this week. US Dollar was the strongest against the Japanese Yen.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | -0.09% | -0.29% | 0.06% | -0.02% | 0.44% | 0.30% | 0.42% | |
| EUR | 0.09% | -0.21% | 0.14% | 0.07% | 0.54% | 0.38% | 0.51% | |
| GBP | 0.29% | 0.21% | 0.35% | 0.28% | 0.74% | 0.59% | 0.70% | |
| CAD | -0.05% | -0.14% | -0.35% | -0.07% | 0.40% | 0.24% | 0.37% | |
| AUD | 0.02% | -0.06% | -0.27% | 0.07% | 0.48% | 0.31% | 0.44% | |
| JPY | -0.45% | -0.56% | -0.76% | -0.38% | -0.44% | -0.16% | -0.04% | |
| NZD | -0.30% | -0.39% | -0.59% | -0.24% | -0.31% | 0.16% | 0.13% | |
| CHF | -0.42% | -0.50% | -0.71% | -0.36% | -0.43% | 0.04% | -0.11% |
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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