USD/INR loses momentum amid thin US holiday trading

Indian Rupee attracts some buyers on the softer USD.
The IMF projected the Indian economy to remain strong at 6.5% in both 2024 and 2025.
The FOMC Minutes from the January meeting will be due on Wednesday.

Indian Rupee (INR) gathers strength on Monday amid the decline of the US Dollar (USD). The positive economic outlook of India provides some support to the INR. The International Monetary Fund (IMF) said in its latest World Economic Outlook update that economic growth in India was projected to remain strong at 6.5% in both 2024 and 2025.

While Japan has unexpectedly slipped into a recession, India still shines as a ‘bright spot’ on the global map. The IMF forecasts that India will surpass both Japan and Germany in terms of economic output in 2026 and 2027, respectively. However, the geopolitical tension in the Middle East and economic headwinds might cap the upside of INR and drag the pair lower.

US markets are closed on Monday due to the President's Day holiday. Market participants will keep an eye on the FOMC Minutes from the January meeting, due on Wednesday. The attention will turn to India’s S&P Global Services PMI and RBI MPC Meeting Minutes on Thursday.

Daily Digest Market Movers: Indian Rupee remains strong despite geopolitical tensions and multiple headwinds

India's goods trade deficit narrowed by nearly 12% in January compared to the previous month. The trade deficit dropped to $17.49 billion in January from $19.80 billion in December.
Imports fell to $54.41 billion, from $58.25 billion in December. Exports decreased modestly in January to $36.92 billion from $38.45 billion in December. The slump in exports is mostly due to the geopolitical conflict in the Red Sea.
The US Producer Price Index (PPI) for January increased by 0.3% MoM from a 0.1% decline in December. The PPI figure rose 0.9% in a year, beating market expectations.
US Housing Starts fell -14.8% from 1.562M to 1.331M, while Building Permits slumped -1.5% from 1.8% in the previous reading.
The Michigan Consumer Sentiment Index improved to 79.6 in February from January’s reading of 79.0, below the market consensus.

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Technical Analysis: Indian Rupee witnesses an upswing within the longer band

Indian Rupee trades firmer on the day. USD/INR has traded within a multi-month-old descending trend channel of 82.70–83.20 since December 8, 2023.

In the near term, USD/INR maintains a bearish bias as the pair is below the key 100-period Exponential Moving Average (EMA) on the daily chart. Furthermore, the 14-day Relative Strength Index (RSI) holds below the 50.0 midline, suggesting the path of least resistance level is to the downside.

The immediate resistance level for the pair is located near a high of February 14 at 83.10. The crucial upside barrier will emerge near the upper boundary of the descending trend channel at 83.20. Any follow-through buying above 83.20 will pave the way to a high of January 2 at 83.35, followed by the 84.00 psychological level.

On the downside, the initial support level for USD/INR is seen near a low of February 2 at 82.83. The additional downside filter to watch is the lower limit of the descending trend channel at 82.70, en route to a low of August 23 at 82.45.

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 weakest against the Australian Dollar.

	USD	EUR	GBP	CAD	AUD	JPY	NZD	CHF
USD		0.10%	0.11%	0.13%	-0.31%	0.53%	-0.01%	0.77%
EUR	-0.10%		0.01%	0.02%	-0.41%	0.43%	-0.11%	0.66%
GBP	-0.13%	-0.02%		0.03%	-0.43%	0.41%	-0.13%	0.64%
CAD	-0.13%	-0.02%	-0.02%		-0.43%	0.41%	-0.13%	0.65%
AUD	0.31%	0.40%	0.41%	0.42%		0.83%	0.29%	1.09%
JPY	-0.54%	-0.44%	-0.40%	-0.41%	-0.84%		-0.54%	0.23%
NZD	0.01%	0.11%	0.12%	0.14%	-0.30%	0.55%		0.78%
CHF	-0.78%	-0.67%	-0.67%	-0.65%	-1.08%	-0.24%	-0.78%

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).

RBI FAQs

What is the role of the Reserve Bank of India?

The role of the Reserve Bank of India (RBI), in its own words, is "..to maintain price stability while keeping in mind the objective of growth.” This involves maintaining the inflation rate at a stable 4% level primarily using the tool of interest rates. The RBI also maintains the exchange rate at a level that will not cause excess volatility and problems for exporters and importers, since India’s economy is heavily reliant on foreign trade, especially Oil.

How do the decisions of the Reserve Bank of India affect the Rupee?

The RBI formally meets at six bi-monthly meetings a year to discuss its monetary policy and, if necessary, adjust interest rates. When inflation is too high (above its 4% target), the RBI will normally raise interest rates to deter borrowing and spending, which can support the Rupee (INR). If inflation falls too far below target, the RBI might cut rates to encourage more lending, which can be negative for INR.

Does the Reserve Bank of India directly intervene in FX markets?

Due to the importance of trade to the economy, the Reserve Bank of India (RBI) actively intervenes in FX markets to maintain the exchange rate within a limited range. It does this to ensure Indian importers and exporters are not exposed to unnecessary currency risk during periods of FX volatility. The RBI buys and sells Rupees in the spot market at key levels, and uses derivatives to hedge its positions.

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