USD/INR gathers strength ahead of Fed’s Powell speech
|- Indian Rupee loses momentum in Thursday’s early European session.
- A rally in the Chinese Yuan and USD sales from local importers might cap the INR’s downside.
- Investors will monitor the final US Q2 GDP Annualized data and Fedspeak on Thursday.
The Indian Rupee (INR) weakens on Thursday. The sales of the US Dollar (USD) from local corporations, foreign inflows in Indian stocks and bonds, and the stronger Chinese Yuan might underpin the local currency. However, the rise in crude oil prices or risk-averse environment could weigh on the INR and help limit the pair’s losses.
Traders will take more cues from the speeches of the US Federal Reserve (Fed) officials on Thursday, including Chair Jerome Powell. Any hints of another 50 basis points rate reduction by the Fed in November could undermine the USD against the INR. The final US Gross Domestic Product (GDP) Annualized for the second quarter (Q2) will be published later on the same day. On Friday, the Personal Consumption Expenditures Price Index (PCE) will be in the spotlight.
Daily Digest Market Movers: Indian Rupee edges lower amid US Dollar sales from importers
- The Asian Development Bank (ADB) said on Wednesday that it estimates India's economy to grow at 7.0% in fiscal year 2025 and 7.2% in fiscal year 2026, retaining its growth forecasts from April.
- Moody’s Analytics noted that the slowing Indian economy will drag APAC's growth in 2025, as India’s economy is projected to grow by 6.5% in 2025 from an estimated 7.1% for 2024.
- Fed Governor Adriana Kugler said on Wednesday that she “strongly supported” the central bank’s decision last week, adding that it would be appropriate to cut rates further if inflation continues to ease as expected.
- The US New Home Sales fell 4.7% MoM to 716,000 in August from a revised 751,000 in July, the Commerce Department reported Wednesday. This figure came in better than expectations.
- The headline Personal Consumption Expenditures Price Index (PCE) is expected to show an increase of 2.3% YoY in August, while the core PCE is estimated to rise 2.7% in the same reported period.
Technical Analysis: USD/INR’s bearish outlook remains in play
The Indian Rupee trades on a weaker note on the day. According to the daily chart, the USD/INR pair keeps the negative outlook below the key 100-day Exponential Moving Average (EMA). The 14-day Relative Strength Index (RSI) stands below the midline near 38.35, supporting the sellers for the time being.
Sustained bearish vibes potentially drag USD/INR lower to 83.44, the low of September 23. A break below this level could attract sellers to jump in and expose 83.00, representing the psychological level and the low of May 24.
In the bullish case, a decisive break above the 100-day EMA at 83.62 could see a rally to the next upside targets near the support-turned-resistance level at 83.75. Further north, the next resistance level emerges at the 84.00 round mark.
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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