- Indian Rupee loses traction on the stronger US Dollar.
- The Reserve Bank of India (RBI) is anticipated to keep the rate unchanged at 6.50% on Thursday.
- Investors will focus on the Indian S&P Global Services PMI for January and US ISM Services PMI on Monday.
Indian Rupee (INR) recovers its recent losses on Monday. The rebound of the pair is bolstered by the upbeat US job data that prompted a rise in Treasury yields and the US Dollar (USD). Continued strength in US job market data is expected to dampen hopes for early rate cuts by the US Federal Reserve (Fed), which boosts the Greenback broadly.
Economists anticipated that the Reserve Bank of India (RBI) would keep the rate unchanged until at least the third quarter, compared to expectations that the US Federal Reserve would cut its key interest rate next quarter.
Later on Monday, the Indian S&P Global Services PMI for January and the US ISM Services PMI will be released. Market players will closely watch the RBI interest rate decision on Thursday, which is expected to maintain the status quo for a sixth consecutive policy review.
Daily Digest Market Movers: Indian Rupee remains under pressure amid global headwinds
- India’s 10-year benchmark bond yield closed at 7.0555% on Friday, marking the biggest weekly drop in 15 months.
- The Reserve Bank of India (RBI) will leave its benchmark interest rate at 6.50% on Thursday, according to economists polled by Reuters.
- The Indian government will spend a record 11.11 trillion Rupees (approximately $134 billion) on infrastructure development.
- The budget deficit for fiscal year 24 is projected to be 5.8% of GDP.
- The Indian government aims to lower the budget deficit to less than 4.5% by FY26.
- The Indian S&P Global Manufacturing PMI rose to 56.5 in January from 54.9 in November.
- The US Nonfarm Payrolls (NFP) report came in better than expected, surging to 353K in January from 333K in December (revised up from 216K).
- The Unemployment Rate was unchanged at 3.7%. Finally, wage growth is firming, with Average Hourly Earnings growing 4.5% YoY in January from 4.4% in December.
- The probability of a March rate cut has dropped to 19%, compared to 38% just a day ago, according to the CME FedWatch tool.
- Federal Reserve Chair Jerome Powell said a rate cut in March is too soon, as he doesn’t believe the FOMC will have the confidence by then that inflation is heading back to 2% sustainably.
- Powell added that policymakers see it appropriate to cut rates this year, but it is prudent to be open to the possibility of rates falling from spring onwards.
- The US central bank will discuss at the March meeting the timing of easing the pace of quantitative tightening (QT).
Technical Analysis: Indian Rupee extends the range play within 82.78–83.45
Indian Rupee trades on a weaker note on the day. The USD/INR pair consolidated within a two-month-old descending trend channel of 82.78–83.45. From a technical perspective, the bearish tone of USD/INR remains unchanged as the pair is below the key 100-period Exponential Moving Average (EMA) on the daily chart. Additionally, the 14-day Relative Strength Index (RSI), stands below the 50.0 midline, indicating that bearish momentum is in play.
On the other hand, any follow-through buying above the 83.00 psychological handle will see a rally to the upper boundary of the descending trend channel and a high of January 18 at 83.18. The next hurdle will emerge at a high of January 2 at 83.35.
In case our bearish USD scenario plays out, the lower limit of the descending trend channel at 82.71. acts as a potential support level for the pair. A breach of this level could take the pair back to a low of August 23 at 82.45, followed by a low of June 1 at 82.25.
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 Pound Sterling.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | 0.00% | 0.09% | 0.05% | -0.02% | -0.08% | -0.14% | 0.06% | |
| EUR | -0.01% | 0.09% | 0.04% | -0.01% | -0.08% | -0.14% | 0.05% | |
| GBP | -0.10% | -0.10% | -0.06% | -0.12% | -0.18% | -0.23% | -0.04% | |
| CAD | -0.05% | -0.05% | 0.04% | -0.07% | -0.13% | -0.18% | 0.01% | |
| AUD | 0.02% | 0.03% | 0.12% | 0.07% | -0.05% | -0.11% | 0.09% | |
| JPY | 0.08% | 0.07% | 0.15% | 0.12% | 0.06% | -0.08% | 0.13% | |
| NZD | 0.13% | 0.14% | 0.23% | 0.18% | 0.11% | 0.04% | 0.20% | |
| CHF | -0.07% | -0.07% | 0.02% | -0.03% | -0.08% | -0.15% | -0.21% |
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: https://www.fxstreet.com/news/usd-inr-recovers-ahead-of-indian-and-us-services-pmi-202402050402