- The Indian Rupee faced challenges due to foreign exchange outflows amid rising risk aversion.
- India’s annual inflation rose to a nine-month high of 5.49% in September, dampening the likelihood of RBI’s rate cuts.
- The downside of the INR could be restrained due to falling Oil prices, as India is world's third-largest Oil importer.
The USD/INR pair remains near its all-time high at 84.14 as the Indian Rupee (INR) grapples with challenges stemming from foreign exchange outflows. This situation arises as traders evaluate the policy outlook for the Reserve Bank of India (RBI) in light of the recent inflation data from India.
India’s Consumer Price Index (CPI) rose to a nine-month high of 5.49% year-over-year in September, up from 3.65% in the previous month and well above market expectations of 5.0%. This increase represents the highest inflation rate recorded this year, surpassing the Reserve Bank of India’s (RBI) target of 4%. As a result, expectations for earlier rate cuts by the RBI have been tempered.
The Indian Rupee may receive support from falling Oil prices, given that India is the world's third-largest Oil importer. Crude Oil prices are facing downward pressure due to concerns about global demand, which have outweighed the impact of supply worries related to the ongoing uncertainty in the Middle East conflict.
West Texas Intermediate (WTI) Oil price extends its losing streak for the fourth successive session, trading around $70.30 per barrel, at the time of writing.
Daily Digest Market Movers: Indian Rupee struggles due to foreign exchange outflows
- The US Dollar Index (DXY), which measures the value of the US Dollar (USD) against other six major currencies, maintaining its position around its two-month high of 103.35, recorded on Monday. Last week’s strong jobs and inflation data have reduced expectations for aggressive easing by the Federal Reserve (Fed) in 2024.
- According to the CME FedWatch Tool, there is currently a 94.1% probability of a 25-basis-point rate cut in November, with no expectation of a larger 50-basis-point reduction.
- On Tuesday, Federal Reserve Bank of Atlanta President Raphael Bostic stated that he anticipates just one more interest rate cut of 25 basis points this year, as reflected in his projections during last month's US central bank meeting. "The median forecast was for 50 basis points beyond the 50 basis points already implemented in September, according to Reuters.
- On Monday, Foreign institutional investors sold a net total of 37.32 billion rupees ($444 million) in stocks, marking their eleventh consecutive session of net selling. In contrast, domestic investors net purchased shares valued at 22.78 billion rupees, per Reuters.
- The Washington Post reported on Monday that Israeli Prime Minister Benjamin Netanyahu informed the United States (US) that Israel plans to focus on Iranian military targets rather than nuclear or Oil infrastructure.
- Federal Reserve (Fed) Bank of Minneapolis President Neel Kashkari reassured markets late on Monday by reaffirming the Fed's data-dependent approach. Kashkari reiterated familiar Fed policymaker views on the strength of the US economy, noting continued easing of inflationary pressures and a robust labor market, despite a recent uptick in the overall unemployment rate, per Reuters.
Technical Analysis: USD/INR holds position above 84.00, close to all-time highs
The USD/INR pair hovers around 84.00 on Wednesday. Analyzing the daily chart shows that the pair is testing the lower boundary of an ascending channel pattern. If it breaks below this channel, it could indicate a potential shift away from the current bullish sentiment. However, the 14-day Relative Strength Index (RSI) remains above the 50 level, which suggests that bullish momentum is still intact.
In terms of resistance, the USD/INR pair may encounter a barrier at its all-time high of 84.14, recorded on August 5. A breakthrough above this level could push the pair toward the upper boundary of the ascending channel, estimated at around 84.35.
On the downside, if the pair breaks below the immediate support at the psychological level of 84.00, it may target the nine-day Exponential Moving Average (EMA) at approximately 83.97.
USD/INR: Daily Chart
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.
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.
Recommended content
Editors’ Picks
EUR/USD climbs above 1.0500 on persistent USD weakness
EUR/USD preserves its bullish momentum and trades above 1.0500 on Monday. In the absence of high-impact data releases, the risk-positive market atmosphere makes it difficult for the US Dollar (USD) to find demand and helps the pair push higher.
GBP/USD rises to 1.2600 area as mood improves
Following a short-lasting correction, GBP/USD regains its traction and trades at around 1.2600. The US Dollar struggles to stay resilient against its rivals as market mood improves on Monday, allowing the pair to build on its bullish weekly opening.
Gold slumps below $2,650 despite falling US yields
After recovering toward $2,700 during the European trading hours, Gold reversed its direction and dropped below $2,650. Despite falling US Treasury bond yields, easing geopolitical tensions don't allow XAU/USD to find a foothold.
Five fundamentals for the week: Fed minutes may cool Bessent boost, jobless claims, core PCE eyed Premium
Will the rally around Scott Bessent's nomination continue? The short Thanksgiving week features a busy Wednesday packed with events, and the central bank may cool the enthusiasm.
Eurozone PMI sounds the alarm about growth once more
The composite PMI dropped from 50 to 48.1, once more stressing growth concerns for the eurozone. Hard data has actually come in better than expected recently – so ahead of the December meeting, the ECB has to figure out whether this is the PMI crying wolf or whether it should take this signal seriously. We think it’s the latter.
Best Forex Brokers with Low Spreads
VERIFIED Low spreads are crucial for reducing trading costs. Explore top Forex brokers offering competitive spreads and high leverage. Compare options for EUR/USD, GBP/USD, USD/JPY, and Gold.