USD/INR posts modest gains, investors await FOMC and RBI Meeting Minutes
- Indian Rupee trades on a weaker note amid the rebound of USD.
- The RBI is anticipated to wait for the US Fed to take action before adjusting its monetary policy.
- The FOMC and RBI Meeting Minutes will be in the spotlight this week.
Indian Rupee (INR) weakens on Tuesday on the stronger US Dollar (USD). The INR is expected to trade with a modest positive bias, supported by carry trades and the speculation that the Reserve Bank of India (RBI) will ease monetary policy more slowly than the Fed. However, a continuation of debt-related dollar inflows, higher crude oil, and rising US bond yields might cap the upside of the pair in the near term.
Goldman Sachs expects two rate cuts in India in the second half of the year. If the economy is worse than forecast, the RBI may be forced to cut interest rates more quickly and deeply.
Traders will monitor the minutes of the Federal Open Market Committee’s (FOMC) and RBI’s latest monetary policy meetings, due later on Wednesday and Thursday, respectively.
Daily Digest Market Movers: Indian Rupee weakens in the face of multiple challenges and uncertainties
- Foreign investors purchased about $2 billion in Indian bonds in February, after purchases of $2.3 billion the previous month.
- Goldman Sachs economists said India’s economic growth may exceed 6% for the rest of the decade, driving more investments from China into the South Asian country.
- Minister of Commerce and Industry, Piyush Goyal, said the government’s ambition is to expand the current $3.7 trillion Indian economy to a $30–35 trillion fully developed economy by 2047.
- The US Producer Price Index (PPI) for January increased by 0.3% MoM from a 0.1% decline in December. The PPI figure rose 0.9% in a year, beating market expectations.
- The stronger-than-expected inflation data has prompted Fed policymakers to ramp up their cautious stance on interest rate cuts this year.
- The markets expect the first 25 basis points (bps) rate cut in 2024 as early as June, according to the CME FedWatch Tools.
Technical Analysis: Indian Rupee softens in a longer-term trading range
Indian Rupee trades softer on the day. USD/INR remains stuck within a multi-month-old descending trend channel between 82.70 and 83.20 since December 8, 2023.
In the short term, the pair trades sideways with indecisive action. It’s worth noting that the 14-day Relative Strength Index (RSI) hovers around the 50.0 midline, suggesting a flattening momentum for the pair.
A break above the upper band of the Bollinger Band at 83.15 could see a rally to the upper boundary of the descending trend channel at 83.20. Any follow-through buying above 83.20 will expose a high of January 2 at 83.35, en route to the 84.00 psychological level.
On the other hand, a move below the lower band of Bollinger Band at 82.90 could set off a test of the lower limit of the descending trend channel at 82.70, followed by a low of August 23 at 82.45.
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 New Zealand Dollar.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | 0.10% | 0.02% | 0.07% | 0.10% | 0.05% | 0.16% | 0.04% | |
| EUR | -0.10% | -0.09% | -0.04% | -0.01% | -0.05% | 0.05% | -0.06% | |
| GBP | -0.02% | 0.07% | 0.05% | 0.08% | 0.03% | 0.14% | 0.03% | |
| CAD | -0.06% | 0.04% | -0.02% | 0.04% | -0.02% | 0.10% | -0.02% | |
| AUD | -0.10% | 0.00% | -0.08% | -0.03% | -0.06% | 0.05% | -0.06% | |
| JPY | -0.05% | 0.07% | -0.03% | 0.01% | 0.05% | 0.10% | -0.01% | |
| NZD | -0.17% | -0.06% | -0.15% | -0.09% | -0.06% | -0.11% | -0.12% | |
| CHF | -0.04% | 0.06% | -0.03% | 0.02% | 0.05% | 0.00% | 0.11% |
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.