USD/INR flat-lines amid higher US bond yields, Fed rate cut bets
- Indian Rupee trades sideways on Tuesday amid a cautious mood.
- Higher US bond yields and lower bets on Fed rate cuts might drag the INR lower against the US Dollar.
- The respective Indian and US Consumer Price Index (CPI) inflation data are due on Wednesday ahead of the Fed rate decision.
Indian Rupee (INR) remains flat on Tuesday despite the firmer US Dollar (USD). The rising US bond yields and lower bets on rate cuts from the Federal Reserve (Fed) after stronger-than-expected US employment data lift the Greenback for the time being. Nonetheless, the lower crude oil prices and easing political uncertainties surrounding India’s election might support the INR and cap the upside for the pair. Additionally, the Reserve Bank of India (RBI) is likely to intervene in the market to prevent the Indian Rupee from depreciating.
Market players will keep an eye on India’s Consumer Price Index (CPI), which is due on Wednesday. On the US docket, the May CPI will be released ahead of the Fed interest rate decision. After the Fed meeting, the US central bank will update the Summary of Economic Projections (SEP). Any hawkish message from Fed officials is likely to boost the Greenback against its rivals.
Daily Digest Market Movers: Indian Rupee awaits the fresh catalysts
- The INR closed at 83.5050 against the US Dollar, down 0.1% from its close at 83.3725 in the previous session.
- India is estimated to expand at 7% in FY25 as the post-pandemic recovery in the capital expenditure (capex) cycle, fueled by government spending and robust residential real estate demand, said Tanvee Gupta Jain, chief India economist at UBS Securities.
- “We expect the rupee to trade with a slight negative bias on strong US Dollar amid rising expectations of a delay in interest rate cut by the US Federal Reserve due to tight job market,” said BNP Paribas Research Analyst Anuj Choudhary.
- Financial markets have priced in a nearly 47% chance of a Fed rate cut for the September meeting, down from 68% before the NFP data, according to the CME FedWatch tool.
- The US headline CPI figure is expected to show an increase of 3.4% YoY in May, while core CPI is estimated to rise 3.5% YoY in the same report period.
Technical analysis: USD/INR maintains a constructive picture in the longer term
The Indian Rupee trades flat on the day. The USD/INR pair keeps the bullish vibe unchanged on the daily timeframe while holding above the descending trend channel upper boundary and the key 100-day Exponential Moving Average (EMA).
In the near term, the extended consolidation phase is likely to continue since the 14-day Relative Strength Index (RSI) hovers lower towards the 50-midline.
Any follow-through buying above 83.55, a high of June 5, will pave the way to 83.72, a high of April 17. Extended gains will see a rally to the 84.00 psychological level.
On the downside, the first downside target is seen at the 83.30–83.35 region, portraying the resistance-turned-support level and the 100-day EMA. A breach of this level will expose the 83.00 round level, followed by 82.78, a low of January 15.
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 Australian Dollar.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | 1.25% | 0.57% | 0.97% | 1.36% | 0.76% | 1.15% | 0.15% | |
| EUR | -1.27% | -0.69% | -0.30% | 0.13% | -0.50% | -0.10% | -1.13% | |
| GBP | -0.59% | 0.68% | 0.39% | 0.81% | 0.19% | 0.59% | -0.43% | |
| CAD | -0.98% | 0.29% | -0.40% | 0.42% | -0.22% | 0.17% | -0.81% | |
| AUD | -1.38% | -0.13% | -0.81% | -0.40% | -0.63% | -0.21% | -1.25% | |
| JPY | -0.78% | 0.50% | -0.18% | 0.20% | 0.61% | 0.39% | -0.62% | |
| NZD | -1.16% | 0.10% | -0.59% | -0.18% | 0.23% | -0.39% | -1.01% | |
| CHF | -0.14% | 1.11% | 0.43% | 0.82% | 1.23% | 0.62% | 1.01% |
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).
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.