News & Analyses

USD/INR extends rally ahead of Fed rate decision

  • Indian Rupee loses momentum on the month-end US dollar (USD) demand on Tuesday.  
  • The positive outlook in the Indian economy continues to boost Indian equities and might strengthen the INR in the near term.
  • The Federal Reserve’s (Fed) interest rate decision and press conference on Wednesday will be closely watched. 

Indian Rupee (INR) extends its downside on Tuesday amid month-end US dollar (USD) demand from importers. On Monday, the Indian Rupee edged lower to its worst intraday fall in more than two weeks as weakness in major Asian currencies exerts some selling pressure on the local currencies. However, the continuous confidence and optimism in India’s economic stability continue to support Indian equities, and this might lift the INR in the near term.

Market players will monitor the Federal Reserve’s (Fed) interest rate decision and the press conference on Wednesday. A cautious tone from Fed Chair Jerome Powell could boost the Greenback further and create a tailwind for the pair. Also, the ISM Manufacturing PMI data and the US employment report this week might offer some insights about the interest rate outlook. On the Indian docket, India’s HSBC Manufacturing PMI for April will be released on Thursday. 

Daily Digest Market Movers: Indian Rupee remains vulnerable despite the positive economic outlook

  • The Indian economy is estimated to grow faster than 7% in this financial year, according to the National Council of Applied Economic Research (NCAER) on Monday.
  • Nifty had slipped 2.5% in January 2023 amid the Foreign Institutional Investors (FIIs) sell-off. However, so far this April, the Nifty holds a monthly gain of 0.4%.
  • India’s foreign exchange reserves contracted by $2.83 billion to $640.33 billion as of April 19, according to the Reserve Bank of India (RBI). 
  • India’s HSBC Manufacturing PMI is expected to remain unchanged at 59.1 in April.
  • The US Federal Reserve (Fed) is widely anticipated to hold rates steady at a more than two-decade high after their meeting on Wednesday.
  • Financial markets expect only one Fed rate cut in 2024, below the roughly six quarter-point cuts they expected at the beginning of the year. 

Technical analysis: USD/INR keeps the bullish vibe in the longer term

The Indian Rupee trades weaker on the day. USD/INR maintains the bullish outlook unchanged as the pair is above the key 100-day Exponential Moving Average (EMA) on the daily timeframe. The upward momentum is backed by the 14-day Relative Strength Index (RSI), which holds in bullish territory around 55, suggesting the support zone is likely to hold rather than break. 

The immediate resistance level for the pair will emerge near a high of April 15 at 83.50. A sustained bullish move will pave the way to the next upside target near an all-time high of 83.72, en route to the 84.00 psychological round mark. On the downside, a decisive break below a low of April 26 at 83.23 could drag USD/INR back to 83.15, portraying the confluence of the 100-day EMA and a low of April 10. Further south, the next contention level is seen near a low of January 15 at 82.78. 

US Dollar price today

The table below shows the percentage change of US Dollar (USD) against listed major currencies today. US Dollar was the strongest against the Australian Dollar.

USD   0.10% 0.10% 0.09% 0.39% 0.34% 0.29% 0.10%
EUR -0.11%   -0.01% -0.03% 0.28% 0.24% 0.18% -0.01%
GBP -0.11% -0.01%   -0.03% 0.27% 0.21% 0.18% -0.01%
CAD -0.08% 0.02% 0.04%   0.31% 0.23% 0.22% 0.02%
AUD -0.41% -0.30% -0.30% -0.31%   -0.07% -0.12% -0.30%
JPY -0.34% -0.22% -0.20% -0.26% 0.08%   0.00% -0.21%
NZD -0.28% -0.20% -0.19% -0.22% 0.10% 0.02%   -0.20%
CHF -0.07% -0.01% 0.01% -0.03% 0.29% 0.19% 0.20%  

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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