USD/INR trades with mild losses ahead of Fed rate decision


  • The Indian Rupee gains ground in Thursday’s Asian session. 
  • The strengthening of the USD and higher bond yields might cap the INR’s upside. 
  • The US Fed interest rate decision will take center stage on Thursday. 

The Indian Rupee (INR) rebounds on Thursday. Nonetheless, the upside of the local currency might be limited amid a rally in the US Dollar (USD) and higher bond yields, which are bolstered by Donald Trump’s victory in the US presidential elections. Market participants expect the INR to trade in the range on Thursday as the Reserve Bank of India (RBI) is expected to intervene in the market by selling the USD to avoid excess volatility. 

Meanwhile, persistent foreign fund outflows amid bond and foreign exchange volatility could exert some selling pressure on the INR in the near term. Investors will closely monitor the US Federal Reserve (Fed) meeting on Thursday, which is expected to cut interest rates by 25 basis points (bps). Also, the US weekly Initial Jobless Claims will be released.  

Daily Digest Market Movers: Indian Rupee drifts higher, but potential upside seems limited

  • “The rupee was trading in a narrow range for the past two years, and was a bit overvalued too. But now given that the dollar index is rising and other Asian currencies are depreciating, there will be an impact on the rupee too,” noted Gopal Tripathi, head of treasury and capital markets, Jana Small Finance Bank.
  • The HSBC India Services PMI rose to 58.5 in October from 57.7 in September, exceeding a preliminary estimate of 58.3.
  • "During October, the Indian services sector experienced strong expansions in output and consumer demand, as well as job creation," noted Pranjul Bhandari, chief India economist at HSBC.
  • A narrow majority of economists in a Reuters poll expected the RBI to cut rates by 25 bps to 6.25% in December. 
  • Financial markets are now pricing in nearly a 98% possibility of a quarter point reduction and near 70% odds of a similar-sized move in December, according to CME's FedWatch tool. However, traders have begun to trim bets for the number of rate cuts expected next year.  

Technical Analysis: USD/INR’s constructive outlook remains unchanged, eyes on overbought RSI 

The Indian Rupee recovers on the day. Technically, the positive view of the USD/INR pair prevails as the pair holds above the key 100-day Exponential Moving Average (EMA) on the daily timeframe. However, the 14-day Relative Strength Index (RSI) stands above the midline near 73.45, indicating the overbought RSI condition. This suggests that further consolidation cannot be ruled out before positioning for any near-term USD/INR appreciation.

The crucial resistance level for USD/INR emerges near the upper boundary of the ascending trend channel at 84.30. The additional upside filter to watch is 84.50, followed by the 85.00 psychological level.

On the flip side, the lower limit of the trend channel and the high of October 11 in the 84.05-84.10 zone act as an initial support level for the pair. A breach of this level could pave the way to 83.80, the 100-day EMA. Extended losses could see a drop to 83.46, the low of September 24. 

Indian economy FAQs

The Indian economy has averaged a growth rate of 6.13% between 2006 and 2023, which makes it one of the fastest growing in the world. India’s high growth has attracted a lot of foreign investment. This includes Foreign Direct Investment (FDI) into physical projects and Foreign Indirect Investment (FII) by foreign funds into Indian financial markets. The greater the level of investment, the higher the demand for the Rupee (INR). Fluctuations in Dollar-demand from Indian importers also impact INR.

India has to import a great deal of its Oil and gasoline so the price of Oil can have a direct impact on the Rupee. Oil is mostly traded in US Dollars (USD) on international markets so if the price of Oil rises, aggregate demand for USD increases and Indian importers have to sell more Rupees to meet that demand, which is depreciative for the Rupee.

Inflation has a complex effect on the Rupee. Ultimately it indicates an increase in money supply which reduces the Rupee’s overall value. Yet if it rises above the Reserve Bank of India’s (RBI) 4% target, the RBI will raise interest rates to bring it down by reducing credit. Higher interest rates, especially real rates (the difference between interest rates and inflation) strengthen the Rupee. They make India a more profitable place for international investors to park their money. A fall in inflation can be supportive of the Rupee. At the same time lower interest rates can have a depreciatory effect on the Rupee.

India has run a trade deficit for most of its recent history, indicating its imports outweigh its exports. Since the majority of international trade takes place in US Dollars, there are times – due to seasonal demand or order glut – where the high volume of imports leads to significant US Dollar- demand. During these periods the Rupee can weaken as it is heavily sold to meet the demand for Dollars. When markets experience increased volatility, the demand for US Dollars can also shoot up with a similarly negative effect on the Rupee.

 

Share: Feed news

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


Recommended content

Editors’ Picks

AUD/USD holds recovery above 0.6600 after Chinese trade data

AUD/USD holds recovery above 0.6600 after Chinese trade data

AUD/USD is holding its recovery above 0.6600 in the Asian session on Thursday. The pair capitalizes on a modest US Dollar pullback and strong Chinese trade surplus data amid RBA Governor Bullock's prudent remarks and improving risk sentiment. Fed verdict is awaited. 

AUD/USD News
USD/JPY stays defensive below 154.50 amid Japanese verbal warnings

USD/JPY stays defensive below 154.50 amid Japanese verbal warnings

USD/JPY is extending its retreat below 154.50 early Thursday, following a massive surge on Wednesday. A US Dollar pullback and speculations that Japanese authorities might intervene to prop up the Yen undermine the pair. The focus now shifts to the Fed decision for further impetus. 

USD/JPY News
Gold price loses ground due to solid US Dollar following Trump’s victory

Gold price loses ground due to solid US Dollar following Trump’s victory

Gold price extends its losses for the second successive session on Thursday. The dollar-denominated precious metal faces downward pressure from a stronger US Dollar following the victory of former President Donald Trump in the US election.

Gold News
XRP eyes $0.6640 as Ripple CEO tips Trump to fire Gensler on first day in office

XRP eyes $0.6640 as Ripple CEO tips Trump to fire Gensler on first day in office

Ripple's XRP is up over 5% on Wednesday and could extend its rally to $0.6640 as the Securities & Exchange Commission may not file its appeal brief against the company due to Donald Trump's presidential election victory.

Read more
Trump wins: Tax cuts come with a cost

Trump wins: Tax cuts come with a cost

Donald Trump’s victory will ensure a lower tax environment that should boost sentiment and spending in the near term. However, promised tariffs, immigration controls and higher borrowing costs will increasingly become headwinds through his presidential term.

Read more
Best Forex Brokers with Low Spreads

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.

Read More

Forex MAJORS

Cryptocurrencies

Signatures