USD/INR trades flat amid multiple challenges
|- Indian Rupee remains relatively quiet ahead of the FOMC meeting.
- A pullback in US Treasury bond yields and lower oil prices lift the Indian Rupee on Tuesday.
- Federal Open Market Committee's (FOMC) interest rate decision will be closely watched by traders.
Indian Rupee (INR) trades flat on Tuesday amid multiple challenges. A pullback in US Treasury bond yields and lower oil prices lift the INR on the day. Nonetheless, the equity outflows might exert pressure on the INR as overseas investors sold $1.67B in Indian equities in October. Additionally, the challenges from the Middle East geopolitical tension might boost safe-haven assets like the Greenback and act as a tailwind for the USD/INR pair.
Investors will monitor India’s Fiscal Deficit and Infrastructure Output data for September on Tuesday. The spotlight this week will be the highly-anticipated Federal Open Market Committee's (FOMC) interest rate decision on Wednesday. The markets anticipate the central bank to leave the interest rate unchanged at its November meeting.
Daily Digest Market Movers: Indian Rupee remains sensitive to the geopolitical factors and risk sentiment
- Market players will monitor whether the RBI starts selling bonds via open market operations (OMO) this week as liquidity improves.
- India's foreign exchange reserves declined by $2.36B to $583.53B for the week ending October 20, according to the RBI.
- The US Dallas Fed Manufacturing Index fell to -19.2 in October from -18.1 drop in September.
- The US Core Personal Consumption Expenditure Index (PCE) arrived at 3.7% YoY in September from 3.8% in the previous reading, matching the market expectation, the headline PCE came in at 3.4% YoY vs the estimation of 3.4%.
- The Michigan Consumer Confidence Index improved to 63.8, better than expected.
- UoM inflation expectations for a one-year period are expected to grow by 4.2%, while for a five-year period are expected to remain steady at 3.0%.
- Foreign investors sold $1.67B in Indian equities in October, which might weigh on the Indian Rupee.
- RBI will continue to keep an eye on maintaining inflation at the 4% target.
- RBI forecasted that India's GDP would grow at a 6.5% annual rate in the current fiscal year.
- The International Monetary Fund (IMF) revised up its forecast growth rate for India to 6.3% in October.
- India’s Wholesale Price Index (WPI) for September, a gauge of inflation, dropped -0.26% YoY versus 0.52% prior, below the market consensus of 0.50%.
Technical Analysis: The Indian Rupee trades flat with a slight negative bias
The Indian Rupee trades around a flatline on the day. The USD/INR pair remains confined within a range of 83.00–83.35. The upward outlook of USD/INR remains intact as the pair holds above the 100- and 200-day Exponential Moving Averages (EMA) on the daily chart.
Any decisive follow-through buying above the upper boundary of the trading range of 83.35 will see a rally to year-to-date (YTD) highs of 83.45. Further north, the next upside barrier at a psychological round mark at 84.00. On the flip side, the key support level is seen at 83.00, representing the confluence of a low of October 20 and a round mark. A breach below the 83.00 mark could see a drop to 82.82 (low of September 12), en route to 82.65 (low of August 4).
US Dollar price in the last 7 days
The table below shows the percentage change of US Dollar (USD) against listed major currencies in the last 7 days. US Dollar was the strongest against the Swiss Franc.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | 0.69% | 0.85% | 1.12% | -0.16% | 0.32% | 0.40% | 1.26% | |
| EUR | -0.69% | 0.16% | 0.43% | -0.86% | -0.38% | -0.30% | 0.56% | |
| GBP | -0.85% | -0.17% | 0.27% | -1.03% | -0.54% | -0.47% | 0.40% | |
| CAD | -1.13% | -0.44% | -0.27% | -1.30% | -0.82% | -0.73% | 0.12% | |
| AUD | 0.18% | 0.87% | 1.03% | 1.29% | 0.49% | 0.57% | 1.43% | |
| JPY | -0.32% | 0.38% | 0.54% | 0.80% | -0.50% | 0.07% | 0.93% | |
| NZD | -0.39% | 0.31% | 0.46% | 0.73% | -0.56% | -0.09% | 0.85% | |
| CHF | -1.25% | -0.55% | -0.39% | -0.11% | -1.42% | -0.93% | -0.85% |
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 Rupee FAQs
What are the key factors driving the Indian Rupee?
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.
How do the decisions of the Reserve Bank of India impact the Indian 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.
What macroeconomic factors influence the value of the Indian Rupee?
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.
How does inflation impact the Indian 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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