USD/INR flat lines as investors await fresh catalysts
- The Indian Rupee steadies in Thursday’s Asian session.
- Trump tariff threats and persistent outflows from Indian stocks weigh on the INR.
- RBI intervention and lower crude oil prices might cap the downside for the local currency.
The Indian Rupee (INR) is holding steady on Thursday. Concerns over the impact of trade tariffs and Foreign Portfolio Investment (FPI) outflows could exert some selling pressure on the local currency. FPIs sold more than $10 billion worth of Indian equities in the first six weeks of 2025, the largest outflow ever recorded during this time. This enormous selloff has resulted in the worst start for domestic markets in over a decade.
Nonetheless, the potential US Dollar (USD) selling intervention by the Reserve Bank of India (RBI) and a decline in crude oil prices might help limit the INR’s losses. Traders will keep an eye on the US weekly Initial Jobless Claims, the CB Leading Economic Index and the Philly Fed Manufacturing Index reports, which will be released later on Thursday. Also, the Federal Reserve’s (Fed) Austan Goolsbee, Michael Barr and Alberto Musalem are scheduled to speak on Thursday.
Indian Rupee trades sideways amid heightened global market volatility
- The RBI’s foreign exchange reserves have declined sharply by over $75 billion since September 27, while the INR depreciated from 83.70 to 87.96 against the USD on February 10.
- India’s Gross Domestic Product (GDP) is estimated to grow at 6.6% in the October-December quarter of 2024-25, down from 8.6% recorded in the same period of 2023-24, the Bank of Baroda showed Tuesday.
- The minutes from the FOMC meeting released on Wednesday indicated that the Fed policymakers believe that it is well positioned to take time to assess the outlook for economic activity, the labor market and inflation.
- Fed officials agreed that inflation must show clear signs of slowing down before any further rate reductions can be made.
- Fed Vice Chairman Philip Jefferson said late Wednesday the US central bank has time to weigh its next interest rate decision move, citing a robust economy and still above-target inflation, per Reuters.
- Chicago Fed President Austan Goolsbee stated that inflation has fallen but is still too high, adding that once inflation falls, the interest rates can fall more.
USD/INR keeps the bullish vibe despite consolidation in the near term
The Indian Rupee trades flat on the day. The bullish tone of the USD/INR pair remains in play as the pair holds above the key 100-day Exponential Moving Average (EMA) on the daily chart. The 14-day Relative Strength Index (RSI) stands above the midline near 55.50, supporting the buyers in the near term.
The first upside barrier for USD/INR is located at the 87.00 psychological level. Bullish candlesticks past the mentioned level could see a rally to an all-time high near 88.00, en route to 88.50.
In the bearish case, the initial support level to watch is 86.58, the low of February 17. The additional downside target emerges at 86.35, the low of February 12, followed by 86.14, the low of January 27.
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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