USD/INR trades with mild negative bias, Fed Chair Powell’s testimony eyed
- Indian Rupee recovers its recent losses on the weaker USD.
- RBI’s Das said the Indian economy is likely to grow close to 8.0% in FY24, exceeding the estimate of 7.6%.
- Investors will focus on the US weekly Initial Jobless Claims and the second testimony by Fed Chair Powell on Thursday.
Indian Rupee (INR) edges higher on Thursday amid the decline of the US Dollar Index (DXY). Economists anticipate USD/INR to trade in a narrow band in the next months and to rise modestly in a year as the Reserve Bank of India (RBI) continues to intervene in currency markets.
On Wednesday, RBI governor Shaktikanta Das said the Indian economy is poised to grow more than the central government’s second-advance estimate of 7.6% growth in the current financial year (FY24), and it might be closer to 8.0%. India’s robust domestic growth along with stable external macros has been underpinning the strength in INR. Nonetheless, higher US Treasury bond yields and the rebound in oil prices might lift the US Dollar (USD) and cap the downside of the pair.
Looking ahead, the US weekly Initial Jobless Claims and Trade Balance are due on Thursday, along with the second testimony by Chair Powell and the Fed’s Mester speech. On Friday, attention will shift to the highly-anticipated US Nonfarm Payrolls, which is forecast to see 200K job additions in February from 353K in January.
Daily Digest Market Movers: Indian Rupee remains vulnerable to higher bond yields and a rise in oil prices
- The government raised its growth forecast for the fiscal year 2024 to 7.6% from 7.3%.
- India’s GDP expanded at 8.4% in the final three months of 2023, the strongest in 18 months, boosted by robust manufacturing and construction activities.
- US ADP private sector employment rose 140K in February from 111K in January, below the market expectation of 150K.
- January JOLTS job openings dropped to 8.863M versus 9.026M prior, below the consensus of 8.900M.
- The Federal Reserve (Fed) Chair Jerome Powell said on Wednesday that interest rate cuts are likely at some point in 2024, but is not yet ready to say when.
- Powell noted that the central bank thinks it’s not appropriate to cut the rate until they have confidence that inflation is moving sustainably toward 2%.
Most recent article: Sensex trades flat in opening dealings on Thursday
Technical Analysis: Indian Rupee remains capped in a longer band of 82.65-83.15
Indian Rupee trades strongly on the day. USD/INR has been traded within a multi-month-old descending trend channel since December 8, 2023 around 82.65-83.15
USD/INR maintains the bearish outlook unchanged as the pair holds below the 100-day Exponential Moving Average (EMA) on the daily chart. It’s worth noting that the 14-day Relative Strength Index (RSI) supports the sellers for the time being as it lies below the 50.0 midline.
If the pair breaks below the key support level near the lower limit of the descending trend channel at 82.65, then USD/INR may get enough bearish pressure to test lower near a low of August 23 at 82.45 and finally a low of June 1 at 82.25.
A bullish breakout above the confluence of the 100-day EMA and a psychological round figure of 83.00 could attract bulls to the upper boundary of the descending trend channel at 83.15. The additional upside filter to watch is a high of January 2 at 83.35, en route to 84.00.
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 weakest against the Japanese Yen.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | -0.59% | -0.62% | -0.53% | -1.36% | -1.39% | -0.83% | 0.30% | |
| EUR | 0.58% | -0.02% | 0.07% | -0.76% | -0.80% | -0.23% | 0.88% | |
| GBP | 0.62% | 0.02% | 0.09% | -0.73% | -0.77% | -0.21% | 0.92% | |
| CAD | 0.52% | -0.05% | -0.09% | -0.83% | -0.87% | -0.29% | 0.82% | |
| AUD | 1.35% | 0.76% | 0.73% | 0.82% | -0.03% | 0.53% | 1.63% | |
| JPY | 1.37% | 0.78% | 0.76% | 0.86% | 0.05% | 0.58% | 1.66% | |
| NZD | 0.81% | 0.25% | 0.21% | 0.30% | -0.52% | -0.56% | 1.13% | |
| CHF | -0.30% | -0.89% | -0.92% | -0.83% | -1.67% | -1.70% | -1.12% |
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).
RBI FAQs
The role of the Reserve Bank of India (RBI), in its own words, is “..to maintain price stability while keeping in mind the objective of growth.” This involves maintaining the inflation rate at a stable 4% level primarily using the tool of interest rates. The RBI also maintains the exchange rate at a level that will not cause excess volatility and problems for exporters and importers, since India’s economy is heavily reliant on foreign trade, especially Oil.
The RBI formally meets at six bi-monthly meetings a year to discuss its monetary policy and, if necessary, adjust interest rates. When inflation is too high (above its 4% target), the RBI will normally raise interest rates to deter borrowing and spending, which can support the Rupee (INR). If inflation falls too far below target, the RBI might cut rates to encourage more lending, which can be negative for INR.
Due to the importance of trade to the economy, the Reserve Bank of India (RBI) actively intervenes in FX markets to maintain the exchange rate within a limited range. It does this to ensure Indian importers and exporters are not exposed to unnecessary currency risk during periods of FX volatility. The RBI buys and sells Rupees in the spot market at key levels, and uses derivatives to hedge its positions.