- The Indian Rupee rebounds in Thursday’s early Asian session.
- India’s outflows, renewed USD demand and higher crude oil prices might undermine the INR, while Fed’s dovish could limit losses.
- Market players await the Indian July HSBC Manufacturing PMI on Thursday for fresh impetus.
The Indian Rupee (INR) recovers on the decline of the US Dollar (USD) on Thursday. The US Federal Reserve (Fed) decided to keep its interest rates unchanged in the range of 5.25%-5.50% for the eighth time in a row at its July meeting on Wednesday. The dovish stance of Fed Chair Jerome Powell after the policy meeting has undermined the Greenback broadly.
However, significant outflows from Indian equities, persistent USD demand from importers, and fluctuations in the Chinese Yuan might cap the INR’s upside. A rise in crude oil prices amid the Middle East geopolitical tensions is likely to weigh on the local currency as India is the third largest consumer of oil behind the US and China.
Looking ahead, traders will keep an eye on the Indian HSBC Manufacturing Purchasing Managers Index (PMI), which is due on Thursday. On the US docket, the ISM Manufacturing PMI, weekly Initial Jobless Claims, and the final S&P Global Manufacturing PMI will be published later on Thursday.
Daily Digest Market Movers: Indian Rupee remains weak amid global challenges
- India's Ratings and Research (Ind-Ra) raised its economic growth projection for the current fiscal year to 7.5%, up from its earlier estimate of 7.1%.
- Ind-Ra's revised growth projection is higher than most other estimates, including those from the Reserve Bank of India (7.2%), the Economic Survey (6.5 to 7%), and the International Monetary Fund (7%).
- The final reading of HSBC Manufacturing PMI is estimated to improve to 58.5 in July from the previous reading of 58.3.
- During the press conference, Fed Chair Jerome Powell said that the first interest rate cut could come "as soon as" the Fed's next rate meeting in September if the data "continue to point to kind of the direction we would want to see.”
- Powell further stated that the US central bank will closely monitor the labor market and stay vigilant for signs of a potentially sharp downturn.
- Futures traders are now pricing in a 100% possibility that the central bank will cut interest rates by 25 basis points (bps) in its September meeting, according to CME FedWatch Tool.
Technical analysis: USD/INR keeps the bullish vibe in the longer term
Indian Rupee trades firmer on the day. The longer-term trend of the USD/INR pair remains bullish, with the price holding around the key 100-day Exponential Moving Average (EMA) and being underpinned by the uptrend line since June 3 on the daily chart. The 14-day Relative Strength Index (RSI) stands above the midline near 58.40, suggesting a potential upside for the time being.
The immediate resistance level is located at the all-time high of 83.85. If the price manages to break above this level, it will spur further upside to the 84.00 psychological level.
On the other hand, the initial support level is seen at the uptrend line around 83.70. If the price breaks below this level, it would signal further selling pressure towards 83.51, a low of July 12. Extended losses will pave the way to 83.45, the 100-day EMA.
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 weakest against the Japanese Yen.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | 0.19% | 0.10% | -0.17% | 0.39% | -3.07% | -1.08% | -0.83% | |
| EUR | -0.20% | -0.09% | -0.36% | 0.18% | -3.26% | -1.27% | -1.04% | |
| GBP | -0.11% | 0.08% | -0.27% | 0.28% | -3.17% | -1.17% | -0.95% | |
| CAD | 0.17% | 0.35% | 0.27% | 0.57% | -2.90% | -0.91% | -0.67% | |
| AUD | -0.41% | -0.19% | -0.27% | -0.54% | -3.46% | -1.48% | -1.22% | |
| JPY | 2.98% | 3.16% | 3.07% | 2.81% | 3.36% | 1.93% | 2.17% | |
| NZD | 1.08% | 1.25% | 1.17% | 0.90% | 1.46% | -1.96% | 0.25% | |
| CHF | 0.83% | 1.01% | 0.93% | 0.66% | 1.22% | -2.22% | -0.24% |
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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