- Indian Rupee holds positive ground in Monday’s early European session.
- Firmer USD, foreign outflows and higher crude oil prices might undermine the INR.
- Traders await the Fedspeak later on Monday.
The Indian Rupee (INR) recovers some lost ground on Monday. The stronger US Dollar (USD), heightened fund outflows from local equities and the rise in crude oil prices might weigh on the local currency.
Traders will keep an eye on Fedspeak later on Monday for fresh impetus. Any dovish comments from US Federal Reserve (Fed) officials might drag the Greenback lower and support the INR. On Wednesday, the Reserve Bank of India (RBI) interest rate decision will be in the spotlight. The Indian central bank is unlikely to cut the benchmark interest rate in its forthcoming bi-monthly monetary policy review later in the week as retail inflation remains elevated.
Daily Digest Market Movers: Indian Rupee rebounds, potential upside seems limited
- The HSBC India Services Purchasing Managers Index (PMI) declined to a 10-month low of 57.7 in September from 60.9 in August, below the market consensus of 58.9.
- "The headline business activity index fell below 60 for the first time in 2024, but we note that at 57.7, it was still much above the long-term average," noted Pranjul Bhandari, chief India economist at HSBC.
- The US Nonfarm Payrolls (NFP) climbed by 254,000 in September from August's revised 159,000 and above the market consensus of 140,000, the Bureau of Labor Statistics showed Friday.
- The Unemployment Rate ticks lower to 4.1% in September, down from 4.2% in August. The Average Hourly Earnings rose to 3.8% from 3.6% during the same period.
- Chicago Fed President Austan Goolsbee said on Friday that he thinks the recent employment data was "superb" and noted that additional reports like this would increase his confidence that the US economy has reached full employment with low inflation.
Technical Analysis: USD/INR maintains a positive picture in the longer term
The Indian Rupee trades on a stronger note on the day. The constructive outlook of the USD/INR prevails as the price holds above the key 100-day Exponential Moving Average (EMA). The upward momentum is supported by the 14-day Relative Strength Index (RSI), which is located above the midline near 59.80.
Consistent trading above the key resistance level of 84.00, representing the upper boundary of the rectangle and psychological mark, could help draw in enough buyers to push USD/INR back to the all-time high of 84.15, en route to 84.50.
On the flip side, any follow-through selling below 83.80, the low of October 1, could drag the pair to the 100-day EMA at 83.65. The next downside target emerges at 83.00, representing the round mark and the low of May 24.
RBI FAQs
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.
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.
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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