Indian Rupee posts modest gains, eyes on RBI’s swap maturity, US bond yield, oil prices
- Indian Rupee trades firmly, supported by the potential aggressive intervention by the Reserve Bank of India (RBI).
- A rise in US Treasury yields and higher crude oil prices might cap the upside of the Indian Rupee.
- Investors will focus on the RBI Forex swap maturity, US economic data.
Indian Rupee (INR) posts modest gains on Monday. The strengthening of the Indian Rupee is bolstered by the potential aggressive intervention by the Reserve Bank of India (RBI) last week. However, the anticipation that the Federal Reserve (Fed) will hold rates ‘higher for longer’ lifts the US Treasury yields near multi-year highs. However, a rise in oil prices might cap the upside of the Indian Rupee.
Traders will keep an eye on a $5 billion RBI swap transaction, which is set to mature on Monday. The maturity of the USD/INR swaps will wipe out $5 billion from the system while injecting about 400 billion Rupees. Furthermore, the release of the US S&P Global PMI, the first reading of Q3 Gross Domestic Product (GDP), and the Core Personal Consumption Expenditures (PCE) data this week will be closely watched by traders.
Daily Digest Market Movers: Indian Rupee gains traction with the bullish economic outlook
- Net foreign direct investment (FDI) in India fell from $18.03 billion in April-August last year to $2.99 billion this year, reflecting a slowing in global activity and a rise in repatriation.
- Fed Chair Jerome Powell and other officials expressed a desire to hold rates unless inflation rises.
- September’s US budget deficit was $170 billion. The overall 2023 budget deficit was $1.695 trillion, 23% larger than the previous year and exceeding all pre-COVID deficits.
- RBI Chief Shaktikanta Das said the central bank does intervene in the forex market, but only to prevent excessive volatility of the Indian Rupee.
- Chief Das stated that RBI will monitor the evolving inflation dynamic amid the uncertainty on food inflation.
- India’s Finance Minister will focus on the impact of ongoing tensions in the Middle East on the supply chain.
- The Indian government is concerned with the settlement currency, the yuan, as Indian refiners have used the yuan to pay for some oil from Russian sellers.
- The RBI’s October bulletin suggested growth is expected to gain momentum through the rest of the year.
- The RBI sold a net $3.86 billion in the spot foreign exchange market in August.
- India’s Wholesale Price Index (WPI) for September came in at -0.26% YoY from 0.52% in the previous reading, missing the market estimation of 0.50%.
Technical Analysis: Indian Rupee holds above the key support level around the 83.00 mark
The Indian Rupee kicks off the week in a positive mood against the US Dollar (USD). The USD/INR pair trades within a narrow range of 83.15-83.30 and the key contention level is seen at the 83.00 psychological round mark. A breach below the latter could see a drop to 82.82 (low of September 12), followed by 82.65 (low of August 4). On the upside, the first resistance level for USD/INR is located near a high of October 4 at 83.30, en route to the all-time high around 83.45, followed by a psychological figure at 84.00. In the meantime, the pair holds above the 100- and 200-day Exponential Moving Averages (EMA) on the daily chart, which hints that further upside looks favorable.
US Dollar price in the last 7 days
The table below shows the percentage change of US Dollar (USD) against listed major currencies in the last 7 days. US Dollar was the strongest against the New Zealand Dollar.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | -0.51% | 0.04% | 0.52% | 0.02% | 0.24% | 1.41% | -0.89% | |
| EUR | 0.51% | 0.56% | 1.02% | 0.49% | 0.74% | 1.91% | -0.40% | |
| GBP | -0.04% | -0.54% | 0.48% | -0.05% | 0.20% | 1.38% | -0.94% | |
| CAD | -0.53% | -1.04% | -0.46% | -0.53% | -0.27% | 0.90% | -1.42% | |
| AUD | 0.02% | -0.50% | 0.05% | 0.53% | 0.25% | 1.42% | -0.90% | |
| JPY | -0.23% | -0.73% | -0.20% | 0.26% | -0.27% | 1.17% | -1.14% | |
| NZD | -1.41% | -1.92% | -1.36% | -0.88% | -1.39% | -1.16% | -2.34% | |
| CHF | 0.88% | 0.40% | 0.92% | 1.40% | 0.90% | 1.14% | 2.29% |
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 economy FAQs
The Indian economy has averaged a growth rate of 6.13% between 2006 and 2023, which makes it one of the fastest growing in the world. India’s high growth has attracted a lot of foreign investment. This includes Foreign Direct Investment (FDI) into physical projects and Foreign Indirect Investment (FII) by foreign funds into Indian financial markets. The greater the level of investment, the higher the demand for the Rupee (INR). Fluctuations in Dollar-demand from Indian importers also impact INR.
India has to import a great deal of its Oil and gasoline so the price of Oil can have a direct impact on the Rupee. Oil is mostly traded in US Dollars (USD) on international markets so if the price of Oil rises, aggregate demand for USD increases and Indian importers have to sell more Rupees to meet that demand, which is depreciative for the Rupee.
Inflation has a complex effect on the Rupee. Ultimately it indicates an increase in money supply which reduces the Rupee’s overall value. Yet if it rises above the Reserve Bank of India’s (RBI) 4% target, the RBI will raise interest rates to bring it down by reducing credit. Higher interest rates, especially real rates (the difference between interest rates and inflation) strengthen the Rupee. They make India a more profitable place for international investors to park their money. A fall in inflation can be supportive of the Rupee. At the same time lower interest rates can have a depreciatory effect on the Rupee.
India has run a trade deficit for most of its recent history, indicating its imports outweigh its exports. Since the majority of international trade takes place in US Dollars, there are times – due to seasonal demand or order glut – where the high volume of imports leads to significant US Dollar- demand. During these periods the Rupee can weaken as it is heavily sold to meet the demand for Dollars. When markets experience increased volatility, the demand for US Dollars can also shoot up with a similarly negative effect on the Rupee.