Indian Rupee holds steady ahead of Indian PMI data
- The Indian Rupee remains steady in Wednesday’s early Asian session.
- Finance Minister Nirmala Sitharaman announced raising the capital gains tax, which exerted selling pressure on the INR.
- Investors will monitor the preliminary Indian and US PMI data for July, which are due on Wednesday.
The Indian Rupee (INR) trades on a flat note on Wednesday despite the modest recovery of the Greenback. The upside of INR might be capped after India's finance minister Nirmala Sitharaman announced on Tuesday at the Budget Session of Parliament to raise capital gains tax from equity investments and equity derivative trades. However, the possibility that the Reserve Bank of India (RBI) will intervene in the market to prevent the local currency from depreciating and the fall in crude oil prices could help the INR’s losses.
Investors will watch the flash Indian HSBC Purchasing Managers Index (PMI) for July, which is due on Wednesday. On the US docket, the preliminary US S&P Global Purchasing Managers Index (PMI) for July will be released. The Manufacturing PMI is expected to improve slightly to 51.7 in July from 51.6 in June, while the Services PMI is forecast to ease to 54.4 from 55.3 in the same report period.
Daily Digest Market Movers: Indian Rupee’s potential upside might be limited amid multiple headwinds
- India's benchmark equity indexes, the BSE Sensex and Nifty 50, experienced significant losses on Tuesday, ending slightly lower after falling more than 1% earlier in the day.
- India’s Finance Minister Nirmala Sitharaman said at the Budget Session of Parliament on Tuesday that the Securities transaction tax on futures and options will be raised to 0.02% and 0.01%, respectively.
- Sitharaman stated that long-term capital gains on all financial and non-financial assets will be taxed at 12.5%. In addition, the limit of exemption for capital gains will be set at Rs 1.25 lakh.
- The government will reduce customs duty on gold, and silver to 6%, and platinum to 6.4%, said Nirmala Sitharaman.
- The Indian government is set to promote the Indian Rupee for overseas investments, noting that the rules and regulations for EDI will be simplified.
- India's budget struck a balance between higher spending on job creation and rural development, and a reduced fiscal deficit objective, according to Reuters. The Indian government reduced its fiscal deficit target to 4.9% of GDP, down from 5.1% in the February interim budget.
- The US Existing Home Sales dropped by 5.4% MoM in June from 4.11M to 3.89M, worse than expected. Meanwhile, the Richmond Fed Manufacturing Index came in at -17 in July versus -10 prior.
- Traders are now pricing in nearly a 96% possibility of a Fed rate cut in September, according to the CME FedWatch Tool.
Technical analysis: Indian Rupee maintains a bearish bias in the longer term
The Indian Rupee trades flat on the day. The constructive stance of the USD/INR pair remains intact as it confirms a breakout above the month-long trading range and holds above the key 100-day Exponential Moving Average (EMA). The upward momentum is supported by the 14-day Relative Strength Index (RSI), which stands in the bullish zone around 60.00.
The immediate resistance level for the pair is seen at the all-time high of 83.77. A bullish breakout above this level will see a rally to the 84.00 psychological level.
In the bearish case, any follow-through selling below the resistance-turned-support level at 83.65 might pave the way to 83.51, a low of July 12. The additional downside target to watch is 83.41, 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 | 0.05% | 0.09% | 0.07% | 0.27% | -0.42% | 0.42% | 0.03% | |
| EUR | -0.04% | 0.04% | 0.02% | 0.23% | -0.45% | 0.36% | -0.02% | |
| GBP | -0.09% | -0.04% | -0.02% | 0.19% | -0.49% | 0.32% | -0.06% | |
| CAD | -0.07% | -0.02% | 0.02% | 0.18% | -0.50% | 0.35% | -0.03% | |
| AUD | -0.27% | -0.21% | -0.18% | -0.22% | -0.69% | 0.15% | -0.24% | |
| JPY | 0.41% | 0.44% | 0.46% | 0.47% | 0.68% | 0.82% | 0.44% | |
| NZD | -0.42% | -0.35% | -0.32% | -0.34% | -0.14% | -0.81% | -0.38% | |
| CHF | -0.04% | 0.01% | 0.06% | 0.04% | 0.24% | -0.45% | 0.38% |
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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