Home Forex USD/INR Loses Recovery Momentum, Eyes on Fedspeak, RBI Rate Decision

USD/INR Loses Recovery Momentum, Eyes on Fedspeak, RBI Rate Decision

by SuperiorInvest


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  • The Indian rupee is trading on a stronger note amid a weaker US dollar.
  • The OECD revised India’s growth outlook for 2024-25 (FY25) to 6.2% from the 6.1% forecast earlier in its November outlook.
  • Investors will tune in to Fed speeches and Reserve Bank of India (RBI) rate decisions this week.

The Indian Rupee (INR) snapped a three-day losing streak on Wednesday thanks to a corrective move in the American dollar (USD) and the decline in US government bond yields. The Organization for Economic Co-operation and Development (OECD) on Monday raised India’s growth outlook for 2024-25 (FY25) to 6.2% from the 6.1% estimated earlier in its November outlook. However, the OECD warned that geopolitical tensions in the Middle East posed a threat to the global economy, as disruptions to traffic in the Red Sea could raise consumer prices.

With no top economic data out of the US, traders will be taking more cues on the trajectory of interest rates from Fedspeak during the week. The Reserve Bank of India (RBI) has scheduled a monetary policy meeting for Tuesday-Thursday. On Thursday, RBI Governor Shaktikanta Das will announce the MPC’s decision at 4:30 GMT.

Daily Digest Market Movers: Indian rupee remains vulnerable ahead of RBI rate decision

  • Foreign investors bought $936 million worth of Indian bonds in February, on top of $275 million inflows into local stocks.
  • The Indian rupee is up 0.2% year-to-date against the US dollar, as falling expectations of an early Fed rate cut supported the USD.
  • The RBI is expected to keep the repo rate at 6.5% in a policy decision to be announced on Thursday.
  • Fed Bank of Cleveland President Loretta Mester said she could open the door to cutting interest rates later this year if the economy performs as expected.
  • Minneapolis Fed President Neel Kashkari said the central bank has not yet reached its target for year-over-year inflation data, but the 3-month and 6-month data are essentially there.
  • According to CME’s FedWatch tool, traders now estimate a 15% chance of a rate cut at the March meeting.

Technical Analysis: Indian rupee remains long-term bound in 82.70-83.20 range

The Indian rupee is higher on the day. The USD/INR pair was trading within a two-month-old descending trend channel of 82.70-83.20.

In the near term, USD/INR will keep the bearish sentiment intact as the pair remains bound below the key 100-period exponential moving average (EMA) on a daily basis diagram. Additionally, the 14-day Relative Strength Index (RSI) lies below the 50.0 midline, suggesting that further declines cannot be ruled out.

If the bear maintains its momentum, the lower boundary of the downtrend channel at 82.70 will attract some sellers. Another potential level of support appears at the August 23 low at 82.45, en route to the June 1 low at 82.25.

On the other hand, the resistance level is crucial USD/INR is at the confluence of the upper boundary of the downtrend channel and the January 18 high at 83.20. Any subsequent buying will see an upside to further upside targets near the January 2 high at 83.35 and then the psychological level of 84.00.

Today’s price in US dollars

The table below shows today’s percentage change in the Australian Dollar (AUD) against the major listed currencies. The Australian dollar was weakest against the New Zealand dollar.

American dollar euros GBP CAD AUD JPY NZD CHF
American dollar -0.03% 0.02% -0.04% -0.05% 0.04% -0.06% 0.00%
euros 0.01% 0.04% -0.01% -0.02% 0.07% -0.05% 0.02%
GBP -0.02% -0.05% -0.06% -0.06% 0.04% -0.09% 0.00%
CAD 0.05% 0.01% 0.06% 0.00% 0.08% -0.02% 0.01%
AUD 0.05% 0.02% 0.06% 0.01% 0.09% -0.02% 0.05%
JPY -0.05% -0.06% 0.00% -0.10% -0.07% -0.11% -0.07%
NZD 0.07% 0.04% 0.09% 0.03% 0.02% 0.11% 0.07%
CHF 0.00% -0.03% 0.02% -0.04% -0.02% 0.05% -0.07%

The heat map shows the percentage changes of major currencies against each other. The base currency is selected from the left column, while the quote currency is selected from the top row. For example, if you select the Euro from the left column and move along the horizontal line to the Japanese Yen, the percentage change shown in the box will be EUR (base)/JPY (rate).

Frequently asked questions about Indian Rupees

The Indian Rupee (INR) is one of the most sensitive currencies to external factors. The price of crude oil (the country is heavily dependent on imported oil), the value of the US dollar – most trade is done in USD – and the level of foreign investment all have an impact. Direct interventions by the Reserve Bank of India (RBI) in the foreign exchange markets to keep the exchange rate stable, as well as the level of interest rates set by the RBI, are other major factors affecting the rupee.

The Reserve Bank of India (RBI) actively intervenes in the foreign exchange markets to maintain a stable exchange rate to help facilitate trade. In addition, the RBI is trying to keep 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 to put their money in countries that offer relatively higher interest rates and profit from the difference.

Macroeconomic factors that affect the value of the rupee include inflation, interest rates, economic growth rate (GDP), trade balance and foreign investment inflows. A higher growth rate may lead to more foreign investment, which will increase demand for the rupee. A less negative trade balance will ultimately lead to a stronger rupee. Higher interest rates, especially real rates (interest rates less inflation), are also positive for the rupee. The risk-on environment may lead to greater inflows of foreign direct and indirect investment (FDI and FII), benefiting the rupee as well.

Higher inflation, especially if it is comparatively higher than its Indian counterparts, is generally negative for the currency as it reflects devaluation due to excess supply. Inflation also increases the cost of exports, resulting in more rupees being sold to buy foreign imports, which is a negative rupee. At the same time, higher inflation usually leads to the Reserve Bank of India (RBI) raising interest rates, which can be positive for the rupee due to increased demand from international investors. Lower inflation has the opposite effect.

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