USD/INR trades firmly on stronger USD, all eyes on Fed decision

Indian Rupee struggles to gain on the stronger USD.
The Reserve Bank of India (RBI) Governor highlighted the optimistic view for the Indian economy.
Investors will closely monitor the Federal Open Market Committee (FOMC) policy meeting on Wednesday.

Indian Rupee ticks lower on Wednesday on the renewed US Dollar (USD) demand. That being said, the higher-for-longer US interest rate narrative has lifted US Treasury bond yields to multi-year highs, which acts as a tailwind for the pair. Elevated geopolitical risks in the Middle East might also lead to higher oil prices and impact Indian importers.

Nonetheless, the Reserve Bank of India (RBI) Governor Shaktikanta Das said Tuesday that India’s growth momentum remains robust and the Gross Domestic Product (GDP) in the second quarter of Fiscal Year 2024 is expected to surprise on the upside. Das further stated that geopolitical risks are the biggest challenge to growth. However, he is confident that India is in a better position compared to other countries to deal with potentially risky situations.

Market participants will closely monitor the Federal Open Market Committee (FOMC) policy meeting, with no change in rates expected. However, a hawkish stance during the press conference might trigger volatility in the Indian market. Later this week, the spotlight will shift to US Nonfarm Payrolls on Friday.

Daily Digest Market Movers: Indian Rupee maintains a bearish vibe amid multiple headwinds

Reserve Bank of India (RBI) Governor Shaktikanta Das said GDP growth for the second quarter of FY24 will exceed expectations.
RBI Governor Das said geopolitical risks are the biggest challenge, but India is better placed compared to other countries to deal with any potentially risky situation.
Overseas investors sold $2.74 billion in Indian equities in October, marking the largest monthly sell-off since January.
According to the RBI, India’s foreign currency reserves fell by $2.36 billion to $583.53 billion in the week ending October 20.
RBI will maintain watch over inflation to ensure that it remains within the 4% target.
The International Monetary Fund (IMF) raised its projected growth rate for India to 6.3% in October.
The US S&P/Case-Shiller Home Price Indices for August improved to 2.2% YoY versus 0.2% prior, better than the expectation of 1.6%.
The US Core Personal Consumption Expenditure Index (PCE) for September arrived at 3.7% YoY from the previous reading of 3.8%, and the headline PCE arrived at 3.4% YoY versus the estimation of 3.4%.

Technical Analysis: Indian Rupee keeps a bearish stance in a familiar trading range

The Indian Rupee trades with mild losses on the day. The USD/INR pair trades within a familiar range of 83.00–83.35. However, the technical outlook suggests that the bullish bias stays intact as the pair holds above the 100- and 200-day Exponential Moving Averages (EMA) on the daily chart.

The key resistance level will emerge at the upper boundary of the trading range of 83.35. A decisive break above the latter will see a rally to year-to-date (YTD) highs of 83.45. The additional upside filter to watch is a psychological round figure at 84.00. On the other hand, the confluence of a low of October 20 and a round mark at 83.00 acts as a critical contention level. Any follow-through selling below 83.00 will pave the way to a low of September 12 at 82.82, followed by a low of August 4 at 82.65.

US Dollar price today

The table below shows the percentage change of US Dollar (USD) against listed major currencies today. US Dollar was the strongest against the Australian Dollar.

 
USD
EUR
GBP
CAD
AUD
JPY
NZD
CHF

USD
 
0.08%
0.06%
0.03%
0.10%
-0.01%
0.06%
0.00%

EUR
-0.09%
 
-0.03%
-0.04%
0.00%
-0.11%
-0.04%
-0.09%

GBP
-0.06%
0.02%
 
-0.02%
0.03%
-0.09%
-0.01%
-0.06%

CAD
-0.03%
0.05%
0.03%
 
0.06%
-0.04%
0.03%
-0.03%

AUD
-0.09%
-0.01%
-0.01%
-0.07%
 
-0.12%
-0.03%
-0.09%

JPY
0.01%
0.11%
0.08%
0.06%
0.11%
 
0.07%
0.05%

NZD
-0.06%
0.04%
0.01%
-0.01%
0.02%
-0.07%
 
-0.04%

CHF
0.00%
0.08%
0.06%
0.03%
0.09%
-0.04%
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 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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