USD/INR posts modest gains, investors await RBI rate decision
- Indian Rupee edges lower on the renewed USD demand on Friday.
- The RBI’s Monetary Policy Committee (MPC) is anticipated to keep the repo rate unchanged at 6.50% at its June meeting.
- The RBI monetary policy meeting and US Nonfarm Payrolls (NFP) data will take centre stage on Friday.
Indian Rupee (INR) weakens on Friday on the modest recovery of the US Dollar (USD). The renewed USD demand from local importers and Indian equity outflows is likely to weigh on the INR in the near term despite the easing political uncertainties following India’s election. On the other hand, the potential intervention from the Reserve Bank of India (RBI) might support the Indian Rupee and cap the upside for the pair.
Investors will closely watch the RBI interest rate decision on Friday, with no change in rate expected. The RBI Monetary Policy Committee (MPC) had last changed the benchmark interest rate in February 2023. On the US docket, the employment data will be closely watched, including the Nonfarm Payrolls (NFP), Unemployment Rate and Average Hourly Earnings for May. Softer-than-expected data might spur the speculation of a Federal Reserve (Fed) rate cut dragging the Greenback and creating a headwind for USD/INR.
Daily Digest Market Movers: Indian Rupee struggles to gain ground ahead of key events
- “Expectations that the central bank will intervene to cap rupee weakness is also likely to spur natural offers (to sell dollars) near 83.50,” a foreign exchange trader at a private bank said.
- Modi is set to negotiate terms with alliance members after his Bharatiya Janata Party (BJP) surprisingly failed to win a majority in India’s election, per the Independent.
- According to Aljazeera, the BJP and its National Democratic Alliance (NDA), have won a majority despite having a much lower seat count than in the 2019 elections.
- The US weekly Initial Jobless Claims for the week ended May 31 increased by 8K to 229K from the previous week of 221K. This figure came in above the consensus of 220K.
- The four-week moving average of initial unemployment claims rose to 222K from 210K last month to near the highest level in 9 months.
- The NFP figure is projected to see 185,000 job additions in the US economy in May, while the Unemployment Rate is forecast to remain steady at 3.9% in the same report period.
Technical analysis: USD/INR’s positive outlook prevails above the 100-day EMA
The Indian Rupee trades softer on the day. The USD/INR pair maintains the constructive outlook on the daily timeframe as it broke above the descending trend channel that has been established since mid-April and holds above the key 100-day Exponential Moving Average (EMA). However, further consolidation cannot be ruled out since the pair hovers around the 50-midline, indicating a neutral level.
In the bullish event, a high of June 5 at 83.55 acts as an immediate resistance level for USD/INR. The additional upside target to watch is a high of April 17 at 83.72, followed by the 84.00 round mark.
The first downside filter for USD/INR will emerge in the 83.30-83.35 zone, portraying the resistance-turned-support level and the 100-day EMA. The key contention level is seen at the 83.00 psychological level. A break below this level will pave the way to a low of January 15 at 82.78.
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 | -0.02% | 0.02% | 0.01% | 0.05% | 0.02% | 0.09% | 0.08% | |
| EUR | 0.03% | 0.06% | 0.04% | 0.08% | 0.05% | 0.12% | 0.11% | |
| GBP | -0.03% | -0.06% | 0.00% | 0.02% | 0.01% | 0.06% | 0.05% | |
| CAD | -0.01% | -0.04% | 0.02% | 0.04% | 0.02% | 0.08% | 0.08% | |
| AUD | -0.05% | -0.08% | -0.02% | -0.04% | -0.01% | 0.04% | 0.03% | |
| JPY | -0.02% | -0.05% | -0.02% | -0.04% | 0.01% | 0.04% | 0.05% | |
| NZD | -0.09% | -0.12% | -0.06% | -0.08% | -0.04% | -0.07% | -0.01% | |
| CHF | -0.07% | -0.11% | -0.06% | -0.07% | -0.04% | -0.05% | 0.01% |
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.