- The Indian Rupee weakens in Wednesday’s early European session.
- Possible RBI intervention to sell USD might support INR; higher crude oil prices, foreign outflows might weigh on its upside.
- Investors will closely watch the RBI’s MPC interest rate decision on Thursday, with no change in repo rate expected.
The Indian Rupee (INR) edges lower on Wednesday amid the stronger US Dollar (USD). The downside of the local currency is likely to be limited as potential intervention from the Reserve Bank of India (RBI) might prevent the local currency from volatility in the near term. However, the recovery of crude oil prices amid ongoing geopolitical tensions in the Middle East might drag the INR lower as India is the world’s third-largest consumer of oil. Additionally, the worries about foreign outflows from India and other emerging markets could weigh on the INR.
All eyes will be on the RBI’s Monetary Policy Committee (MPC) meeting on Thursday. Any indication of a dovish shift in the central bank's August meeting policy may further exert some selling pressure on the Rupee.
Daily Digest Market Movers: Indian Rupee loses traction amid multiple challenges
- The Reserve Bank of India's Monetary Policy Committee (MPC) is expected to keep the policy rate at 6.5%. Market experts believe that the RBI is likely to give up its hawkish tilt and pivot to a neutral stance on Thursday.
- "Domestic policy focus is to boost manufacturing and exports, for which one of the things that we may require is a slightly cheaper currency, but current account deficit trends have favored a less undervalued currency," said Dhiraj Nim, a FX strategist at ANZ.
- S&P Global Ratings noted on Tuesday that India stands out both on growth and external fronts amongst the South Asian countries, and the trajectory of the government's fiscal deficit will decide on the direction of sovereign ratings.
- India's economy is expected to expand by 7.0–7.2% in the current fiscal year, owing to strong economic fundamentals and the continuation of domestic policy reforms, according to Deloitte India.
- The US trade deficit narrowed to $73.1 billion in June as the value of exports of goods and services increased by the most since earlier this year, Commerce Department data showed Tuesday.
Technical analysis: USD/INR’s constructive outlook prevails
Indian Rupee trades on a weaker note on the day. The USD/INR pair keeps the bullish vibe on the daily timeframe, characterized by holding above the key 100-day Exponential Moving Average (EMA) and being underpinned by the uptrend line since June 3. The 14-day Relative Strength Index (RSI) indicates upward momentum, suggesting potential for a short-term upside.
The upside target appears at the 84.00 psychological barrier. A sustained breakout above the mentioned level could spur buyers to the next hurdle at 84.50.
On the downside, the uptrend line around 83.78 acts as an initial support level for USD/INR. A breach of this level will see a drop to the 100-day EMA at 83.49. If bearish momentum continues, look for further downside towards the 83.10-83.00 region, representing the round mark and a low of June 4.
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 Japanese Yen.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | 0.01% | 0.66% | -0.77% | -0.87% | 1.14% | -1.15% | 0.11% | |
| EUR | 0.00% | 0.66% | -0.77% | -0.85% | 1.13% | -1.16% | 0.13% | |
| GBP | -0.65% | -0.66% | -1.42% | -1.54% | 0.47% | -1.82% | -0.52% | |
| CAD | 0.76% | 0.78% | 1.42% | -0.07% | 1.88% | -0.37% | 0.90% | |
| AUD | 0.86% | 0.85% | 1.50% | 0.07% | 1.97% | -0.29% | 0.99% | |
| JPY | -1.16% | -1.08% | -0.47% | -1.92% | -2.00% | -2.30% | -1.02% | |
| NZD | 1.13% | 1.14% | 1.79% | 0.36% | 0.29% | 2.26% | 1.27% | |
| CHF | -0.13% | -0.13% | 0.53% | -0.90% | -0.99% | 0.98% | -1.28% |
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 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.
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