- The Indian Rupee remains under pressure near an all-time low in Wednesday’s early European session.
- Stronger USD and persistent foreign fund outflows continue to undermine the INR.
- Investors will shift their attention to the Fed rate decision on Thursday.
The Indian Rupee (INR) attracts some sellers to near an all-time low on Wednesday, pressured by a rise in the US Dollar (USD) and weakness in Asian peers after the polls showed Republican candidate Donald Trump ahead of Democratic candidate Kamala Harris in the US presidential election. Furthermore, significant outflows from domestic stocks continue to weigh on the local currency.
However, the downside risk for the INR might be limited by the routine actions taken by the Reserve Bank of India (RBI) to sell the USD to prevent significant depreciation in the Indian Rupee. Investors will closely monitor the final outcome of the US election ahead of the US Federal Reserve (Fed) meeting on Thursday. Meanwhile, Trump trades continue to rally as his odds improve. Analysts expect that the victory of Donald Trump could push the USD higher.
Daily Digest Market Movers: Indian Rupee seems vulnerable amid US election updates
- "Dollar is doing well, U.S. yields are on the rise and U.S. equity futures are up. Traders are getting into Trump trades based on what the U.S. election results are so far," noted a Singapore-based hedge fund portfolio manager.
- According to the IMF, India is now estimated to overtake Japan as the world's fourth-biggest economy by FY2025. The IMF forecasts that India's GDP will rise to $4,340 billion next fiscal year.
- The US ISM Services Purchasing Managers Index (PMI) rose to 56.0 in October from 54.9 in September and beating the estimation of 53.8.
- The US S&P Global Services PMI came in at 55.0 in October, down from the previous reading and the consensus of 55.3.
- Financial markets are now pricing in nearly a 94% possibility of a quarter point reduction and a near 80% odds of a similar-sized move in December, according to CME's FedWatch tool.
Technical Analysis: USD/INR remains bullish in the longer term
The Indian Rupee weakens on the day. Technically, the strong bullish outlook of the USD/INR pair remains intact as the pair holds above the key 100-day Exponential Moving Average (EMA) on the daily timeframe. Additionally, the 14-day Relative Strength Index (RSI) holds above the midline near 67.30, suggesting that the path of least resistance is to the upside.
The key upside barrier for USD/INR emerges near the upper boundary of the ascending trend channel at84.25. Extended gains above the mentioned level could see a rally to 84.50, en route to the 85.00 psychological level.
In the bearish event, any follow-through selling below the lower limit of the trend channel near 84.05 could expose 83.79, the 100-day EMA. The next contention level is located at 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.
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 treads water just above 1.0400 post-US data
Another sign of the good health of the US economy came in response to firm flash US Manufacturing and Services PMIs, which in turn reinforced further the already strong performance of the US Dollar, relegating EUR/USD to the 1.0400 neighbourhood on Friday.
GBP/USD remains depressed near 1.2520 on stronger Dollar
Poor results from the UK docket kept the British pound on the back foot on Thursday, hovering around the low-1.2500s in a context of generalized weakness in the risk-linked galaxy vs. another outstanding day in the Greenback.
Gold keeps the bid bias unchanged near $2,700
Persistent safe haven demand continues to prop up the march north in Gold prices so far on Friday, hitting new two-week tops past the key $2,700 mark per troy ounce despite extra strength in the Greenback and mixed US yields.
Geopolitics back on the radar
Rising tensions between Russia and Ukraine caused renewed unease in the markets this week. Putin signed an amendment to Russian nuclear doctrine, which allows Russia to use nuclear weapons for retaliating against strikes carried out with conventional weapons.
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.