USD/INR gains traction ahead of Fed rate decision
|- Indian Rupee loses momentum on the month-end US dollar (USD) demand on Tuesday.
- The positive outlook in the Indian economy continues to boost Indian equities and might strengthen the INR in the near term.
- The Federal Reserve's (Fed) interest rate decision and press conference on Wednesday will be closely watched.
Indian Rupee (INR) extends its downside on Tuesday amid month-end US dollar (USD) demand from importers. On Monday, the Indian Rupee edged lower to its worst intraday fall in more than two weeks as weakness in major Asian currencies exerts some selling pressure on the local currencies. However, the continuous confidence and optimism in India's economic stability continue to support Indian equities, and this might lift the INR in the near term.
Market players will monitor the Federal Reserve's (Fed) interest rate decision and the press conference on Wednesday. A cautious tone from Fed Chair Jerome Powell could boost the Greenback further and create a tailwind for the pair. Also, the ISM Manufacturing PMI data and the US employment report this week might offer some insights about the interest rate outlook. On the Indian docket, India’s HSBC Manufacturing PMI for April will be released on Thursday.
Daily Digest Market Movers: Indian Rupee remains weak despite the positive economic outlook
- The Indian economy is estimated to grow faster than 7% in this financial year, according to the National Council of Applied Economic Research (NCAER) on Monday.
- Nifty had slipped 2.5% in January 2023 amid the Foreign Institutional Investors (FIIs) sell-off. However, so far this April, the Nifty holds a monthly gain of 0.4%.
- India’s foreign exchange reserves contracted by $2.83 billion to $640.33 billion as of April 19, according to the Reserve Bank of India (RBI).
- India’s HSBC Manufacturing PMI is expected to remain unchanged at 59.1 in April.
- The US Federal Reserve (Fed) is widely anticipated to hold rates steady at a more than two-decade high after their meeting on Wednesday.
- Financial markets expect only one Fed rate cut in 2024, below the roughly six quarter-point cuts they expected at the beginning of the year.
Technical analysis: USD/INR keeps the bullish vibe in the longer term
The Indian Rupee trades weaker on the day. USD/INR maintains the bullish outlook unchanged as the pair is above the key 100-day Exponential Moving Average (EMA) on the daily timeframe. The upward momentum is backed by the 14-day Relative Strength Index (RSI), which holds in bullish territory around 55, suggesting the support zone is likely to hold rather than break.
The immediate resistance level for the pair will emerge near a high of April 15 at 83.50. A sustained bullish move will pave the way to the next upside target near an all-time high of 83.72, en route to the 84.00 psychological round mark. On the downside, a decisive break below a low of April 26 at 83.23 could drag USD/INR back to 83.15, portraying the confluence of the 100-day EMA and a low of April 10. Further south, the next contention level is seen near a low of January 15 at 82.78.
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 | 0.19% | 0.26% | 0.23% | 0.67% | 0.34% | 0.60% | 0.24% | |
| EUR | -0.19% | 0.06% | 0.03% | 0.48% | 0.21% | 0.40% | 0.05% | |
| GBP | -0.26% | -0.07% | -0.03% | 0.41% | 0.09% | 0.34% | -0.02% | |
| CAD | -0.23% | -0.03% | 0.03% | 0.43% | 0.10% | 0.37% | 0.00% | |
| AUD | -0.67% | -0.48% | -0.40% | -0.43% | -0.33% | -0.08% | -0.43% | |
| JPY | -0.34% | -0.15% | -0.09% | -0.12% | 0.33% | 0.25% | -0.13% | |
| NZD | -0.58% | -0.41% | -0.34% | -0.37% | 0.08% | -0.25% | -0.36% | |
| CHF | -0.22% | -0.06% | 0.01% | -0.02% | 0.42% | 0.13% | 0.35% |
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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