USD/INR weakens ahead of India’s Federal Budget
- The Indian Rupee edges higher in Tuesday’s Asian session.
- Persistent foreign inflows to India and lower crude oil prices might support the INR in the near term.
- Investors await the Indian Union Budget on Tuesday, which will be announced at 06:00 GMT.
The Indian Rupee (INR) recovers some lost ground on Tuesday after falling to an all-time low in the previous session. A weak Chinese Yuan, and sustained US Dollar (USD) demand from local corporates and oil companies might continue to undermine the INR. Nonetheless, the downside of the Indian Rupee might be limited as the Reserve Bank of India (RBI) is likely to intervene to support the local currency against depreciation. Additionally, strong inflows into the Indian equity markets and a decline in crude oil prices might underpin the INR in the near term.
Market players will closely monitor India’s Federal Budget on Tuesday. On the US docket, Existing Home Sales and Richmond Fed Manufacturing Index will be released. Later this week, the attention will shift to the preliminary US S&P Global Purchasing Managers Index (PMI) for July, Gross Domestic Product (GDP) for the second quarter and the Personal Consumption Expenditures Price Index (PCE) data for June, which will be released on Wednesday, Thursday and Friday, respectively.
Daily Digest Market Movers: Indian Rupee rebounds ahead of Indian Union Budget
- The Indian government is considering lowering personal tax rates for some groups of people, which could help boost consumption in the economy, two government sources told Reuters.
- India’s foreign exchange has risen by nearly $15 billion in the first half of July, reaching a historic high of $667 billion.
- “The upcoming Union Budget is expected to provide a strong outlook for the rupee, as it will outline India's income and expenditure roadmap for the next year. The rupee remains broadly range-bound between Rs 83.25 a dollar and Rs 83.80 per dollar," said Jateen Trivedi, VP Research Analyst - Commodity and Currency, LKP Securities.
- The Indian economy is likely to grow by 6.5% to 7% this year with prospects of clocking 7%-plus growth in coming years, according to the Economic Survey for 2023-24.
- New York Fed President John Williams and Fed Governor Christopher Waller noted that the US central bank is getting “closer” to where it wants to be in terms of rate cuts.
- Traders in Fed Funds Futures markets have fully priced in rate cuts in September, with at least two quarter-point cuts in 2024.
Technical analysis: USD/INR maintains a constructive outlook in the longer term
The Indian Rupee trades with mild gains on the day. The USD/INR pair keeps the bullish vibe on the daily timeframe as it confirms a breakout above the month-long trading range and holds above the key 100-day Exponential Moving Average (EMA). The 14-day Relative Strength Index (RSI) points higher above 60.00, suggesting that some bullish momentum may be in play.
The first upside barrier for the pair is located near the all-time high of 83.77. A break above this level could be enough to spur some buyers to the 84.00 psychological level.
On the other hand, consistent trading below the resistance-turned-support level at 83.65 may draw in enough selling pressure to drag USD/INR lower to 83.51, a low of July 12. Further south, the pair might gain enough downside momentum to revisit 83.40, the 100-day EMA.
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 | 0.10% | 0.02% | 0.37% | 0.81% | -0.27% | 0.70% | 0.17% | |
| EUR | -0.11% | -0.08% | 0.25% | 0.71% | -0.37% | 0.61% | 0.03% | |
| GBP | 0.00% | 0.07% | 0.33% | 0.78% | -0.31% | 0.67% | 0.13% | |
| CAD | -0.36% | -0.26% | -0.34% | 0.45% | -0.64% | 0.35% | -0.22% | |
| AUD | -0.83% | -0.71% | -0.79% | -0.44% | -1.09% | -0.08% | -0.64% | |
| JPY | 0.27% | 0.41% | 0.30% | 0.65% | 1.05% | 0.98% | 0.43% | |
| NZD | -0.68% | -0.61% | -0.69% | -0.30% | 0.11% | -0.94% | -0.54% | |
| CHF | -0.18% | -0.07% | -0.14% | 0.19% | 0.64% | -0.45% | 0.54% |
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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