USD/INR recovery loses steam, eyes on FOMC and RBI Meeting Minutes

Indian Rupee trades on a stronger note despite the rebound of USD.
The RBI is anticipated to wait for the US Fed to take action before adjusting its monetary policy.
The FOMC and RBI Meeting Minutes will be in the spotlight this week.

Indian Rupee (INR) trades firmly on Tuesday despite the stronger US Dollar (USD). The INR is expected to trade with a modest positive bias, supported by carry trades and the speculation that the Reserve Bank of India (RBI) will ease monetary policy more slowly than the Fed. However, a continuation of debt-related dollar inflows, higher crude oil, and rising US bond yields might cap the upside of the pair in the near term.

Goldman Sachs expects two rate cuts in India in the second half of the year. If the economy is worse than forecast, the RBI may be forced to cut interest rates more quickly and deeply.

Traders will monitor the minutes of the Federal Open Market Committee's (FOMC) and RBI's latest monetary policy meetings, due later on Wednesday and Thursday, respectively.

Daily Digest Market Movers: Indian Rupee rebounds despite multiple headwinds and uncertainties

Foreign investors purchased about $2 billion in Indian bonds in February, after purchases of $2.3 billion the previous month.
Goldman Sachs economists said India’s economic growth may exceed 6% for the rest of the decade, driving more investments from China into the South Asian country.
Minister of Commerce and Industry, Piyush Goyal, said the government’s ambition is to expand the current $3.7 trillion Indian economy to a $30–35 trillion fully developed economy by 2047.
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.
The stronger-than-expected inflation data has prompted Fed policymakers to ramp up their cautious stance on interest rate cuts this year.
The markets expect the first 25 basis points (bps) rate cut in 2024 as early as June, according to the CME FedWatch Tools.

Most recent article: Nifty and Sensex kick off Tuesday in the red

Technical Analysis: Indian Rupee inches up in a longer-term trading range

Indian Rupee trades strongly on the day. USD/INR remains stuck within a multi-month-old descending trend channel between 82.70 and 83.20 since December 8, 2023.

In the short term, the pair trades sideways with indecisive action. It’s worth noting that the 14-day Relative Strength Index (RSI) hovers around the 50.0 midline, suggesting a flattening momentum for the pair.

A break above the upper band of the Bollinger Band at 83.15 could see a rally to the upper boundary of the descending trend channel at 83.20. Any follow-through buying above 83.20 will expose a high of January 2 at 83.35, en route to the 84.00 psychological level.

On the other hand, a move below the lower band of Bollinger Band at 82.90 could set off a test of the lower limit of the descending trend channel at 82.70, followed by 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 New Zealand Dollar.

	USD	EUR	GBP	CAD	AUD	JPY	NZD	CHF
USD		0.00%	0.30%	0.37%	-0.04%	0.65%	-0.18%	0.76%
EUR	0.00%		0.30%	0.37%	-0.05%	0.64%	-0.19%	0.76%
GBP	-0.30%	-0.31%		0.06%	-0.35%	0.33%	-0.49%	0.45%
CAD	-0.37%	-0.37%	-0.06%		-0.44%	0.28%	-0.56%	0.39%
AUD	0.05%	0.05%	0.36%	0.42%		0.69%	-0.13%	0.84%
JPY	-0.65%	-0.63%	-0.34%	-0.28%	-0.69%		-0.84%	0.12%
NZD	0.18%	0.18%	0.48%	0.54%	0.13%	0.82%		0.94%
CHF	-0.79%	-0.78%	-0.49%	-0.41%	-0.87%	-0.14%	-0.97%

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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