USD/INR posts modest gains, investors await FOMC and RBI Meeting Minutes

Indian Rupee trades on a weaker note amid the rebound of USD.
The RBI is anticipated to wait for the US Fed to take action before adjusting its monetary policy.
The FOMC and RBI Meeting Minutes will be in the spotlight this week. 

Indian Rupee (INR) weakens on Tuesday on the stronger US Dollar (USD). The INR is expected to trade with a modest positive bias, supported by carry trades and the speculation that the Reserve Bank of India (RBI) will ease monetary policy more slowly than the Fed. However, a continuation of debt-related dollar inflows, higher crude oil, and rising US bond yields might cap the upside of the pair in the near term. 

Goldman Sachs expects two rate cuts in India in the second half of the year. If the economy is worse than forecast, the RBI may be forced to cut interest rates more quickly and deeply.

Traders will monitor the minutes of the Federal Open Market Committee’s (FOMC) and RBI’s latest monetary policy meetings, due later on Wednesday and Thursday, respectively. 

Daily Digest Market Movers: Indian Rupee weakens in the face of multiple headwinds and uncertainties

Foreign investors purchased about $2 billion in Indian bonds in February, after purchases of $2.3 billion the previous month.
Goldman Sachs economists said India’s economic growth may exceed 6% for the rest of the decade, driving more investments from China into the South Asian country.
Minister of Commerce and Industry, Piyush Goyal, said the government’s ambition is to expand the current $3.7 trillion Indian economy to a $30–35 trillion fully developed economy by 2047.
The US Producer Price Index (PPI) for January increased by 0.3% MoM from a 0.1% decline in December. The PPI figure rose 0.9% in a year, beating market expectations.
The stronger-than-expected inflation data has prompted Fed policymakers to ramp up their cautious stance on interest rate cuts this year.
The markets expect the first 25 basis points (bps) rate cut in 2024 as early as June, according to the CME FedWatch Tools. 

Most recent article: Nifty and Sensex kick off Tuesday in the red

Technical Analysis: Indian Rupee softens in a longer-term trading range

Indian Rupee trades softer on the day. USD/INR remains stuck within a multi-month-old descending trend channel between 82.70 and 83.20 since December 8, 2023. 

In the short term, the pair trades sideways with indecisive action. It’s worth noting that the 14-day Relative Strength Index (RSI) hovers around the 50.0 midline, suggesting a flattening momentum for the pair. 

A break above the upper band of the Bollinger Band at 83.15 could see a rally to the upper boundary of the descending trend channel at 83.20. Any follow-through buying above 83.20 will expose a high of January 2 at 83.35, en route to the 84.00 psychological level. 

On the other hand, a move below the lower band of Bollinger Band at 82.90 could set off a test of the lower limit of the descending trend channel at 82.70, followed by a low of August 23 at 82.45. 

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 Swiss Franc.

 
USD
EUR
GBP
CAD
AUD
JPY
NZD
CHF

USD
 
0.16%
0.20%
0.21%
0.16%
0.15%
-0.03%
0.24%

EUR
-0.16%
 
0.05%
0.05%
0.01%
0.00%
-0.19%
0.09%

GBP
-0.20%
-0.05%
 
0.01%
-0.04%
-0.05%
-0.24%
0.05%

CAD
-0.21%
-0.06%
0.01%
 
-0.05%
-0.06%
-0.25%
0.04%

AUD
-0.16%
-0.01%
0.04%
0.05%
 
-0.01%
-0.19%
0.08%

JPY
-0.14%
0.00%
0.08%
0.05%
0.01%
 
-0.17%
0.10%

NZD
0.03%
0.19%
0.23%
0.24%
0.19%
0.18%
 
0.28%

CHF
-0.25%
-0.09%
-0.05%
-0.04%
-0.09%
-0.10%
-0.29%
 

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 economy FAQs

The Indian economy has averaged a growth rate of 6.13% between 2006 and 2023, which makes it one of the fastest growing in the world. India’s high growth has attracted a lot of foreign investment. This includes Foreign Direct Investment (FDI) into physical projects and Foreign Indirect Investment (FII) by foreign funds into Indian financial markets. The greater the level of investment, the higher the demand for the Rupee (INR). Fluctuations in Dollar-demand from Indian importers also impact INR.

India has to import a great deal of its Oil and gasoline so the price of Oil can have a direct impact on the Rupee. Oil is mostly traded in US Dollars (USD) on international markets so if the price of Oil rises, aggregate demand for USD increases and Indian importers have to sell more Rupees to meet that demand, which is depreciative for the Rupee.

Inflation has a complex effect on the Rupee. Ultimately it indicates an increase in money supply which reduces the Rupee’s overall value. Yet if it rises above the Reserve Bank of India’s (RBI) 4% target, the RBI will raise interest rates to bring it down by reducing credit. Higher interest rates, especially real rates (the difference between interest rates and inflation) strengthen the Rupee. They make India a more profitable place for international investors to park their money. A fall in inflation can be supportive of the Rupee. At the same time lower interest rates can have a depreciatory effect on the Rupee.

India has run a trade deficit for most of its recent history, indicating its imports outweigh its exports. Since the majority of international trade takes place in US Dollars, there are times – due to seasonal demand or order glut – where the high volume of imports leads to significant US Dollar- demand. During these periods the Rupee can weaken as it is heavily sold to meet the demand for Dollars. When markets experience increased volatility, the demand for US Dollars can also shoot up with a similarly negative effect on the Rupee.

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