USD/INR loses ground despite US Dollar strength
|- Indian Rupee holds positive ground in Monday’s early European session.
- Firmer USD, foreign outflows and higher crude oil prices might undermine the INR.
- Traders await the Fedspeak later on Monday.
The Indian Rupee (INR) recovers some lost ground on Monday. The stronger US Dollar (USD), heightened fund outflows from local equities and the rise in crude oil prices might weigh on the local currency.
Traders will keep an eye on Fedspeak later on Monday for fresh impetus. Any dovish comments from US Federal Reserve (Fed) officials might drag the Greenback lower and support the INR. On Wednesday, the Reserve Bank of India (RBI) interest rate decision will be in the spotlight. The Indian central bank is unlikely to cut the benchmark interest rate in its forthcoming bi-monthly monetary policy review later in the week as retail inflation remains elevated.
Daily Digest Market Movers: Indian Rupee rebounds, potential upside seems limited
- The HSBC India Services Purchasing Managers Index (PMI) declined to a 10-month low of 57.7 in September from 60.9 in August, below the market consensus of 58.9.
- "The headline business activity index fell below 60 for the first time in 2024, but we note that at 57.7, it was still much above the long-term average," noted Pranjul Bhandari, chief India economist at HSBC.
- The US Nonfarm Payrolls (NFP) climbed by 254,000 in September from August's revised 159,000 and above the market consensus of 140,000, the Bureau of Labor Statistics showed Friday.
- The Unemployment Rate ticks lower to 4.1% in September, down from 4.2% in August. The Average Hourly Earnings rose to 3.8% from 3.6% during the same period.
- Chicago Fed President Austan Goolsbee said on Friday that he thinks the recent employment data was "superb" and noted that additional reports like this would increase his confidence that the US economy has reached full employment with low inflation.
Technical Analysis: USD/INR maintains a positive stance in the longer term
The Indian Rupee trades on a stronger note on the day. The constructive outlook of the USD/INR prevails as the price holds above the key 100-day Exponential Moving Average (EMA). The upward momentum is supported by the 14-day Relative Strength Index (RSI), which is located above the midline near 59.80.
Consistent trading above the key resistance level of 84.00, representing the upper boundary of the rectangle and psychological mark, could help draw in enough buyers to push USD/INR back to the all-time high of 84.15, en route to 84.50.
On the flip side, any follow-through selling below 83.80, the low of October 1, could drag the pair to the 100-day EMA at 83.65. The next downside target emerges at 83.00, representing the round mark and the low of May 24.
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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