- The Indian Rupee trades with a mild positive bias in Tuesday’s Asian session.
- The INR is weighed by the month-end US Dollar demand and India’s equity outflows.
- The Fed Interest Rate Decision will be the highlight on Wednesday.
The Indian Rupee (INR) trades stronger on Tuesday despite the recovery of the US Dollar (USD). However, the local currency remains under pressure amid month-end corporate demand for USD and substantial foreign fund outflows from Indian equities. Furthermore, the volatile Chinese Yuan and weaker sentiment contribute to the INR’s downside.
Nonetheless, extended losses in crude oil prices might limit the downside for the Indian Rupee as India is the third largest consumer of oil behind the US and China. Investors will closely watch the US Federal Reserve (Fed) Interest Rate Decision on Wednesday. The Fed is widely expected to keep rates unchanged in the range of 5.25%-5.50% for the eighth time in a row at its July meeting. Market players will shift their attention to the Indian HSBC Manufacturing PMI and US employment data later this week, which will be released on Thursday and Friday, respectively.
Daily Digest Market Movers: Indian Rupee rebounds despite multiple challenges
- “Rupee has been continuously depreciating due to equity outflows and tracking Asian currencies. There is Dollar demand from importers. Despite the fall in the US Dollar index, the Rupee is depreciating because the market is not looking at it right now,” said V R C Reddy, head of treasury at Karur Vysya Bank.
- The final reading of the Indian HSBC Manufacturing Purchasing Managers Index (PMI) is estimated to improve to 58.5 in July from the previous reading of 58.3.
- "The case to cut is already strong, and the Fed will likely use the July meeting to plant a seed that a cut in September is on the table," noted Ryan Sweet, chief US economist at Oxford Economics.
- Investors are now seeing that the first rate cut will come by mid-September, pricing in 100% of the Fed rate cut by at least a quarter-percentage-point by then, according to data from the CME FedWatch Tool.
- The US Dallas Fed Manufacturing Business Index came in at -17.5 in July from -15.1 in the previous reading.
Technical analysis: Indian Rupee remains bearish in the longer term
Indian Rupee trades with mild gains on the day. The constructive bias of the USD/INR pair remains in place as the pair has held above the key 100-day Exponential Moving Average (EMA) and is depicted by an uptrend line since June 3 on the daily chart. The 14-day Relative Strength Index (RSI) stands above the midline near 61.45, indicating bullish momentum in the near term and longer term.
The all-time high of 83.85 acts as an immediate resistance level for the pair. Extended gains above this barrier open USD/INR to a move to the 84.00 psychological level.
A resumption of the bearish swing might pave the way to the uptrend line around 83.70. The next contention level is located at 83.51, a low of July 12. The crucial support level is seen at 83.44, the 100-day EMA.
US Dollar price this week
The table below shows the percentage change of US Dollar (USD) against listed major currencies this week. US Dollar was the weakest against the Japanese Yen.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | 0.27% | 0.08% | 0.09% | -0.02% | -0.03% | -0.01% | 0.21% | |
| EUR | -0.26% | -0.18% | -0.16% | -0.26% | -0.28% | -0.26% | -0.05% | |
| GBP | -0.08% | 0.18% | 0.02% | -0.08% | -0.12% | -0.09% | 0.13% | |
| CAD | -0.10% | 0.17% | -0.02% | -0.10% | -0.13% | -0.11% | 0.11% | |
| AUD | -0.02% | 0.28% | 0.09% | 0.11% | -0.01% | -0.01% | 0.22% | |
| JPY | 0.03% | 0.32% | 0.14% | 0.14% | 0.04% | 0.05% | 0.27% | |
| NZD | 0.02% | 0.27% | 0.09% | 0.10% | 0.00% | -0.01% | 0.22% | |
| CHF | -0.21% | 0.05% | -0.13% | -0.11% | -0.21% | -0.26% | -0.22% |
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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