- The Indian Rupee trades in negative territory on Monday.
- Indian economic slowdown, foreign outflows and RBI rate cuts continue to undermine the INR.
- The RBI intervention and lower crude oil prices might cap the downside for local currency.
The Indian Rupee (INR) weakens on Monday, snapping the two-day winning streak. The sluggish growth in the Indian economy, continued Foreign Institutional Investors (FIIs) outflows, and the Reserve Bank of India (RBI) rate cut dragged the local currency lower against the USD.
Nonetheless, the intervention from the RBI by selling the USD might help limit the INR’s losses. Additionally, the decline in crude oil prices is likely to support the Indian Rupee, as India is the world’s third-largest consumer of crude oil. The Indian Trade Balance will be released later on Monday. On the US front, the Federal Reserve (Fed) Patrick Harker and Michelle Bowman are scheduled to speak. The US market will be closed on Monday in observance of President’s Day.
Indian Rupee remains weak amid sluggish growth, RBI rate cuts
- India’s Wholesale Price Index (WPI) inflation slightly decreased to 2.31% in January from 2.37% in December, softer than the 2.50% expected.
- “A sustained domestic market rally is unlikely since the FIIs continue to be on sell mode. Only a decline in dollar and US bond yields will turn the FIIs into buyers,” said V K Vijayakumar, Chief Investment Strategist, Geojit Financial Services.
- US President Donald Trump said last week that Indian Prime Minister Narendra Modi offered to talk about easing tariffs and importing more US oil and gas to shrink the trade deficit between the two countries.
- US Retail Sales declined by 0.9% in January from the 0.7% increase (revised from 0.4%) in December, according to the US Census Bureau on Friday. This figure came in weaker than the market expectation for a decrease of 0.1%.
- Industrial Production increased by 0.5% MoM in January, compared to 1.0% (revised from 0.9%) in December, beating the estimation of a 0.3% rise.
USD/INR maintains a positive tone, further sideways expected in the near term
The Indian Rupee trades softer on the day. Technically, the bullish outlook of the USD/INR pair prevails, characterized by the price being well-supported above the key 100-day Exponential Moving Average (EMA) on the daily timeframe. Nonetheless, further consolidation cannot be ruled out as the 14-day Relative Strength Index (RSI) hovers around the midline.
The 87.00 psychological level acts as an immediate resistance level for USD/INR. Sustained gains past the mentioned level could allow bulls to set their sights on the next targets at an all-time high near 88.00, en route to 88.50.
On the downside, the initial support level is seen at 86.35, the low of February 12. A breach of this level could send the pair back down to 86.14, the low of January 27.
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-as-traders-await-indian-trade-balance-us-tariff-details-202502170225