News & Analyses

USD/INR loses upside traction on likely RBI intervention

  • Indian Rupee recovers its recent losses despite the firmer US Dollar. 
  • The robust Indian economic outlook could strengthen the INR amid slowing global economy and multiple challenges. 
  • Investors will closely watch the US February PCE data on Friday, despite the markets are closed for Good Friday. 

Indian Rupee (INR) extends its recovery on Wednesday despite renewed US Dollar demand (USD). The rebound of INR from its record low level is supported by the likely intervention from the Reserve Bank of India (RBI) to curb sharp swings in the Indian Rupee. 

Against the backdrop of a slowing global economy and geopolitical headwinds, India’s strong economic performance stands out. Foreign portfolio investors turning net buyers in February and Foreign Direct Investment (FDI) inflows are expected to accelerate, according to the monthly economic review report from the Ministry of Finance. The positive Indian economic outlook could boost the INR and limit the USD/INR’s upside. 

The US Gross Domestic Product Annualized (Q4) will be due on Thursday. The growth rate is forecast to remain steady at 3.2%. Investors will closely watch the US February Personal Consumption Expenditures Price Index (PCE) data on Friday. The markets will be closed on Friday for Good Friday. 

Daily Digest Market Movers: Indian Rupee remains strong amid geopolitical challenges

  • India’s Current Account Deficit narrowed to $10.5 billion in the quarter that ended December 2023 (Q4) from $11.4 billion in the previous reading, 1.2% of Gross Domestic Product (GDP).
  • S&P Global raised India’s GDP growth forecast for FY25 to 6.8%, lower than the RBI’s projection of 7%. Additionally, S&P expects RBI to cut rates by 75 bps by the end of this fiscal year.
  • The US Conference Board’s Consumer Confidence dropped to 104.7 from a downwardly revised 104.8 in February. 
  • The Durable Goods Orders for February rose to 1.4% in February from a 6.9% fall in January, better than estimated. 
  • Atlanta Fed President Raphael Bostic suggested that the US central bank should only cut rates once this year as the US economy and inflation slow gradually. 
  • Chicago Fed President Austan Goolsbee said that three cuts in 2024 were consistent with his views, but the Fed must see progress in inflation and strike a balance with its dual mandate.

Technical Analysis: Indian Rupee recovers, but upside potential seems limited

Indian Rupee trades firmly on the day. USD/INR maintains the bullish outlook in the longer term since the pair surged above a multi-month-old descending trend channel last week. 

In the short term, USD/INR holds above the key 100-day Exponential Moving Average (EMA) on the daily chart, with the 14-day Relative Strength Index lying above the 50 midline. This suggests that the positive outlook of the pair remains intact and the path of least resistance level is to the upside. 

An all-time high of 83.49 will be the key upside barrier for the pair. Any follow-through buying above this level will pave the way to the 84.00 psychological round mark. On the other hand, the first downside filter to watch is the resistance-turned-support level at 83.20. Further south, the next contention level is located at the confluence of the 100-day EMA and the round figure of the 83.00 mark. 

US Dollar price today

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

USD   0.05% 0.13% 0.12% 0.31% 0.12% 0.27% 0.03%
EUR -0.05%   0.06% 0.08% 0.25% 0.11% 0.23% -0.03%
GBP -0.12% -0.08%   0.00% 0.18% 0.07% 0.15% -0.10%
CAD -0.12% -0.07% 0.02%   0.18% 0.04% 0.16% -0.10%
AUD -0.31% -0.26% -0.19% -0.19%   -0.20% -0.03% -0.28%
JPY -0.12% -0.07% 0.01% 0.00% 0.18%   0.10% -0.14%
NZD -0.28% -0.23% -0.18% -0.15% 0.02% -0.10%   -0.26%
CHF -0.03% 0.03% 0.10% 0.10% 0.29% 0.07% 0.26%  

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.


Source link

News & Analyses Analyses