USD/INR loses traction as weaker US data drags US Dollar lower
- The Indian Rupee posts modest gains on Thursday amid the softer US Dollar.
- The weaker-than-expected US Services PMI data and encouraging Indian economic outlook weigh on the pair.
- US markets are closed for Independence Day; the attention will shift to the US June employment data on Friday.
The Indian Rupee (INR) gains ground on Thursday on the heavy bearish pressure of the US Dollar (USD). The disappointing US ISM Services Purchasing Managers Index (PMI) report for June weighs on the Greenback and acts as a headwind for the pair. Additionally, the optimism in India’s economic outlook and the continued bull run in Indian equity markets continue to underpin the INR.
However, the renewed USD demand for USD from local corporations and state-run banks, along with higher US Treasury bond yields, might help limit the pair’s downside. The US markets will be closed on Thursday due to Independence Day. Investors will shift their attention to the US June employment data on Friday, including Nonfarm Payrolls, Unemployment Rate, and Average Hourly Earnings.
Daily Digest Market Movers: Indian Rupee remains strong, supported by a positive economic outlook in India
- The final reading of India’s HSBC Services PMI climbed to 60.5 in June from the previous reading of 60.2. This figure came in above the market consensus of 60.4.
- The US ISM Services PMI dropped to 48.8 in June from 53.8 in May, missing the market expectation of 52.5 by a wide margin.
- The US weekly Initial Jobless Claims rose by 238K in the week ending June 29, according to the US Department of Labour (DoL) on Thursday. This figure came in above the estimate of 235K and higher than the previous weekly gain of 233K.
- The Minutes of the FOMC monetary policy meeting on June 11-12 released on Wednesday, indicated that the Fed officials emphasized the data-dependent approach and refrained from committing to interest rate cuts until further observation.
- Some policymakers noted the importance of patience before considering rate cuts, while several others stated that it’s necessary to hike again if inflation were to rebound, the FOMC Minutes showed.
- Chicago Fed President Austan Goolsbee said on Thursday that getting inflation back to 2% will take time and there is still much data to be had on the economy.
Technical analysis: USD/INR might face some consolidation in the near term
The Indian Rupee trades on a stronger note on the day. The bullish trend of the USD/INR pair remains intact on the daily chart as it holds above the key 100-day Exponential Moving Average (EMA).
In the near term, the USD/INR pair has oscillated within the familiar trading range since March 21. The 14-day Relative Strength Index (RSI) hovers around the 50-midline, suggesting further consolidation cannot be ruled out amid neutral momentum.
The first upside barrier for the pair will emerge at 83.65, a high of June 26. Further north, the next hurdle is located at the all-time high of 83.75 en route to the 84.00 psychological mark.
In the bearish event, the 100-day EMA at 83.35 acts as an initial support level for USD/INR. A breach of this level will expose the 83.00 round figure, followed by 82.82, a low of January 12.
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 Japanese Yen.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | 0.02% | -0.01% | 0.03% | -0.06% | -0.15% | -0.06% | 0.00% | |
| EUR | -0.02% | -0.04% | 0.00% | -0.08% | -0.17% | -0.07% | -0.02% | |
| GBP | 0.01% | 0.02% | 0.03% | -0.06% | -0.14% | -0.04% | 0.00% | |
| CAD | -0.01% | 0.04% | 0.00% | -0.05% | -0.17% | -0.06% | -0.01% | |
| AUD | 0.06% | 0.08% | 0.07% | 0.10% | -0.09% | 0.01% | 0.06% | |
| JPY | 0.15% | 0.21% | 0.14% | 0.15% | 0.09% | 0.14% | 0.15% | |
| NZD | 0.06% | 0.07% | 0.04% | 0.06% | -0.01% | -0.09% | 0.02% | |
| CHF | 0.01% | 0.02% | -0.01% | 0.00% | -0.06% | -0.15% | -0.06% |
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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