USD/INR remains strong ahead of US data/FOMC Minutes
|- The Indian Rupee trades on a negative note in Wednesday’s Asian session.
- India’s HSBC Services PMI came in better than the expectation, rising to 60.5 in June versus 60.2 prior.
- India’s foreign portfolio inflows and lower crude oil prices support the INR.
- The FOMC Minutes will be in the spotlight on Wednesday.
The Indian Rupee (INR) edges lower on Wednesday despite the firmer US Dollar (USD). The latest data showed that the services sector in India expanded at a faster pace, up from May's five-month low, amid a strong rise in new orders and an unprecedented expansion in international sales. The final reading of India’s HSBC Services Purchasing Managers Index (PMI) climbed to 60.5 in June from the previous reading of 60.2. This figure came in above the market consensus of 60.4. The local currency attracts modest buyers after the encouraging data.
Meanwhile, foreign portfolio inflows into the equity markets have returned following the post-election outflows, which might boost the Indian Rupee. Additionally, the decline in crude oil prices helps limit the INR’s losses.
Market players are focusing on the US ADP Employment Change, ISM Services PMI for June, and the FOMC Minutes later on Wednesday. The cautious stance from the Federal Reserve (Fed) Chair might support the USD. Furthermore, any evidence of further improvement in the US economy might lift the Greenback and create a tailwind for USD/INR.
Daily Digest Market Movers: Indian Rupee remains sensitive despite optimistic Indian economy outlook
- "Activity growth in India's service sector accelerated in June ... led by an increase in both domestic and international new orders," noted Pranjul Bhandari, chief India economist at HSBC.
The rise in both manufacturing and services boosted the HSBC India Composite PMI to 60.9 in June, matching the flash estimate and up from 60.5 in May. - Nomura analysts expect the Indian rupee will rally by 2% by August. "India's post-election calm, portfolio inflows, economic sweet spot and the RBI (Reserve Bank of India) containing FX volatility are supportive factors," said Nomura analysts.
- India's foreign exchange reserves rose by $816 million to $653.711 billion last week, the Reserve Bank of India (RBI) revealed on Friday.
- Fed Chair Jerome Powell stated on Tuesday that US inflation is cooling again after higher readings earlier this year, but he wants to see more evidence before being confident enough to start cutting interest rates.
- Chicago Fed President Austan Goolsbee said that he sees some "warning signs" of economic weakness, and added that the Fed's goal is to bring inflation down without pressuring the labour market.
- US JOLTS Job Openings climbed to 8.14 million in May, followed by the 7.91 million (revised from 8.05 million) openings reported in April. This figure exceeded the forecasts of 7.91 million, US Bureau of Labor Statistics reported on Tuesday.
- Traders are now pricing in a nearly 63% chance for a 25 basis points (bps) rate cut from the Fed in September, up from 59.5% on Monday, according to the CME FedWatch tool.
Technical analysis: USD/INR might stick within the consolidative range in the near term
The Indian Rupee trades sideways on the day. The USD/INR pair remains capped within the familiar trading range on the daily timeframe. The pair maintains the bullish outlook unchanged in the longer term. However, in the near term, further consolidation looks favorable as the 14-day Relative Strength Index (RSI) hovers around the 50-midline, indicating neutral momentum.
Extended gains above 83.65, a high of June 26, would set up the pair for a potential move to the all-time high of 83.75. An upside breakout might attract some buyers to the 84.00 psychological level.
On the flip side, the initial support level for USD/INR will emerge at 83.35, the 100-day EMA. A decisive break below this level will pave the way to the 83.00 round figure, en route to 82.82, a low of January 12.
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 Japanese Yen.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | -0.05% | -0.04% | -0.05% | -0.23% | 0.22% | 0.00% | 0.06% | |
| EUR | 0.05% | 0.00% | 0.00% | -0.18% | 0.27% | 0.05% | 0.11% | |
| GBP | 0.04% | -0.01% | -0.01% | -0.18% | 0.26% | 0.05% | 0.10% | |
| CAD | 0.05% | 0.00% | 0.00% | -0.17% | 0.28% | 0.05% | 0.11% | |
| AUD | 0.22% | 0.17% | 0.19% | 0.17% | 0.44% | 0.22% | 0.28% | |
| JPY | -0.22% | -0.26% | -0.29% | -0.26% | -0.46% | -0.21% | -0.16% | |
| NZD | 0.00% | -0.05% | -0.05% | -0.05% | -0.23% | 0.22% | 0.06% | |
| CHF | -0.07% | -0.12% | -0.11% | -0.12% | -0.28% | 0.16% | -0.07% |
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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