- The Indian Rupee kicks off the new week on a positive note on Monday.
- A positive economic growth outlook and significant India’s foreign inflows support the INR.
- Investors await the US Chicago Fed National Activity Index, Dallas Fed Manufacturing Business Index and Fed’s Daly speech on Monday.
The Indian Rupee (INR) strengthens on Monday despite the stronger US Dollar (USD). The expectations of continued policy reforms following India’s general election results, a sustained economic growth outlook, and significant foreign inflows into Indian markets may have been factors that triggered the INR’s upside.
Nonetheless, the stronger-than-expected advanced US Purchasing Managers Index (PMI) data and cautious approach from the US Federal Reserve (Fed) is likely to boost the Greenback and create a tailwind for USD/INR. Additionally, the rise of crude oil price continues to undermine the local currency as India is the third-largest consumer of crude oil in the world. On Monday, the US Chicago Fed National Activity Index for May and Dallas Fed Manufacturing Business Index for June will be released. Also, the Fed’s Mary Daly is set to speak later on Monday.
Daily Digest Market Movers: Indian Rupee gains traction amid encouraging factors
- The Reserve Bank of India (RBI) published the Monetary Policy Committee (MPC) minutes on Friday, stating that the policy must continue to be actively disinflationary to ensure inflation is on course to its target level and fuller transmission.
- “Food inflation is the main factor behind the grudgingly slow pace of disinflation. Recurring and overlapping supply-side shocks continue to play an outsized role in food inflation,” said RBI Governor Shaktikanta Das in minutes.
- The first reading of India’s HSBC Manufacturing PMI data rose to 58.5 in June from 57.5 in May. Meanwhile, the Services PMI climbed to 60.4 in the same reported period from 60.2 in May, better than the market expectation of 60.0.
- Foreign inflows into Indian bonds could reach a decade-high of $2 billion around June 28, when they will be included in a widely-tracked JPMorgan index, although the RBI will lap up most of the USD to avoid the volatility in the INR, bankers said.
- The flash US S&P Composite PMI climbed to 54.6 in June from a final reading of 54.5 in May. The US Manufacturing PMI rose to 51.7 in the same reported period from 51.3 in May and was stronger than the expected 51. The Services PMI improved to 55.1 in June from 54.8 prior, beating the estimation of 53.7.
- US Existing Home Sales in May were lower than expected, falling to 4.11 million in May from 4.14 million in April, representing a contraction of -0.7% MoM.
Technical analysis: USD/INR remains strong in the longer term
The Indian Rupee trades stronger on the day. Nonetheless, the USD/INR pair maintains the bullish bias on the daily chart beyond the key 100-day Exponential Moving Average (EMA), with the 14-day Relative Strength Index (RSI) holding above the 50-midline. This indicates that the support is more likely to hold than to break.
The all-time high of 83.75 acts as an immediate resistance level for the pair. Any follow-through buying possibly sends the pair up to the 84.00 psychological level.
On the bearish side, the initial support level for USD/INR will emerge at 83.43, a low of June 20. The crucial contention level is located in the 83.30-83.35 zone, representing the resistance-turned-support level and the 100-day EMA.
US Dollar price today
The table below shows the percentage change of US Dollar (USD) against listed major currencies today. US Dollar was the weakest against the Australian Dollar.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | -0.16% | -0.09% | -0.10% | -0.17% | -0.10% | -0.06% | -0.13% | |
| EUR | 0.15% | 0.06% | 0.06% | 0.01% | 0.06% | 0.09% | 0.02% | |
| GBP | 0.09% | -0.06% | -0.01% | -0.05% | -0.01% | 0.03% | -0.03% | |
| CAD | 0.10% | -0.06% | 0.01% | -0.05% | 0.00% | 0.04% | -0.03% | |
| AUD | 0.17% | -0.01% | 0.02% | 0.03% | 0.01% | 0.09% | 0.06% | |
| JPY | 0.09% | -0.03% | 0.02% | 0.00% | -0.04% | 0.08% | -0.01% | |
| NZD | 0.06% | -0.10% | -0.04% | -0.04% | -0.09% | -0.02% | -0.06% | |
| CHF | 0.14% | -0.04% | 0.02% | 0.03% | -0.03% | 0.04% | 0.06% |
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
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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