- The Indian Rupee trades sideways in Wednesday’s early European session.
- The renewed US Dollar demand might weigh on the local currency, while sustained Indian foreign inflows could underpin the INR.
- Fed Chair Jerome Powell’s second testimony will be in the spotlight on Wednesday.
The Indian Rupee (INR) trades on a flat note on Wednesday amid the modest rebound of the US Dollar (USD). The persistent Greenback demand from local importers might continue to limit the local currency’s gains. However, sustained Indian foreign inflows, a positive economic outlook, and the fastest macroeconomic growth among large economies might all contribute to the INR's upside.
Traders will focus on the second semi-annual testimony by Federal Reserve (Fed) Chair Jerome Powell on Wednesday. The attention will shift to the US Consumer Price Index (CPI) inflation data on Thursday. The US CPI is projected to show an increase of 3.1% YoY in June, while core inflation is projected to remain steady at 3.4% YoY. Any dovish comments from the Fed’s Powell or signs of softer inflation in the US might exert some selling pressure on the Greenback.
Daily Digest Market Movers: Indian Rupee flat lines despite India’s optimistic outlook
- The Reserve Bank of India said on Monday that the country added 46.7 million jobs in the fiscal year ended March, the highest since 1981-1982.
- India’s central bank added $5.6 billion in Gold reserves in the June quarter, with foreign currency assets increasing by $1.9 billion and the value of gold in reserves rising by $3.8 billion. As of June 28, India's foreign currency reserves were at $652 billion.
- Fed Chair Jerome Powell said in testimony Tuesday to Congress that the case for interest rate cuts is becoming stronger as the most recent inflation data showed some modest further progress.
- Powell added that "more good data" could open the door to interest rate cuts. He noted that holding interest rates too high for too long could jeopardize economic growth.
- Powell's remarks have helped push up the chance of a September rate cut by the Fed to above 75%, up from 71% before the US employment data last Friday, according to the CME's FedWatch tool.
Technical analysis: USD/INR remains in consolidative mode in the near term
The Indian Rupee trades flat on the day. The bullish bias of the USD/INR pair continues as the pair holds above the key 100-day Exponential Moving Average (EMA) on the daily chart.
In the shorter term, further consolidation looks favorable as the pair has remained stuck within a familiar trading range since March 21. Additionally, the 14-day Relative Strength Index (RSI) showed neutral momentum, hovering around the 50-midline.
Sustained upside momentum could lift USD/INR to 83.65, the upper boundary of the trading range. A break above this level could attract some buying interest to the all-time high of 83.75 en route to the 84.00 psychological barrier.
On the flip side, the 100-day EMA at 83.36 acts as an initial support level for the pair. Extended losses will expose the 83.00 round mark, followed by 82.82, a low of January 12.
US Dollar price this week
The table below shows the percentage change of US Dollar (USD) against listed major currencies this week. US Dollar was the strongest against the New Zealand Dollar.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | 0.08% | 0.13% | -0.05% | 0.07% | 0.55% | 0.84% | 0.23% | |
| EUR | -0.08% | 0.05% | -0.13% | -0.01% | 0.46% | 0.77% | 0.16% | |
| GBP | -0.13% | -0.04% | -0.17% | -0.07% | 0.40% | 0.73% | 0.11% | |
| CAD | 0.04% | 0.12% | 0.17% | 0.10% | 0.57% | 0.89% | 0.27% | |
| AUD | -0.07% | 0.03% | 0.07% | -0.10% | 0.47% | 0.79% | 0.18% | |
| JPY | -0.54% | -0.46% | -0.41% | -0.57% | -0.46% | 0.31% | -0.30% | |
| NZD | -0.85% | -0.79% | -0.74% | -0.93% | -0.80% | -0.32% | -0.60% | |
| CHF | -0.24% | -0.17% | -0.12% | -0.29% | -0.18% | 0.30% | 0.62% |
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).
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.
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