USD/INR struggles to gain ground ahead of US Retail Sales data
- Indian Rupee gains traction on the softer US dollar on Tuesday.
- The upside of the INR might be limited amid the Fed’s hawkish tone and higher crude oil prices.
- Investors await the US Retail Sales data for fresh impetus, which is due on Tuesday.
The Indian Rupee (INR) gains ground amid the weaker Greenback on Tuesday. The upside of the local currency might be limited as the cautious stance of US Federal Reserve (Fed) officials is likely to influence the US Dollar (USD) for the time being. Additionally, the rebound of crude oil prices might weigh on the INR. It’s worth noting that India is the third largest consumer of Oil behind the US and China.
Nonetheless, the potential foreign exchange intervention by the Reserve Bank of India (RBI) might support the Indian Rupee and cap the upside for the pair. Looking ahead, US Retail Sales is due on Tuesday, which is estimated to improve by 0.2% MoM in May. The strong consumer spending might further boost the Greenback against the INR. Apart from this, Fed members Lisa Cook, Thomas Barkin, Adriana Kugler, Lorie Logan, Alberto Musalem, and Austan Goolsbee are scheduled to speak later on Tuesday.
Daily Digest Market Movers: Indian Rupee edges higher despite the Fed’s hawkish stance
- India will continue to be the fastest-growing economy in Asia-Pacific in 2024, sustaining last year’s domestically driven momentum, according to the rating agency Moody’s.
- Philadelphia Fed President Patrick Harker said on Monday that if the US economy performed as he expected, the Fed would be able to cut its benchmark interest rate once this year, per Reuters.
- Cleveland Fed Bank President Loretta Mester and Chicago Fed Bank President Austan Goolsbee emphasized the need for more confidence and said they would wait for the data.
- The US NY Empire State Manufacturing Index recovered to -6.0 in June from the previous reading of -15.6 in May, above the forecast of -9.0. The index has remained in contraction territory since November of last year.
- Investors see a nearly 62% chance of a rate cut from the US Fed on September 18, according to the CME’s FedWatch Tool.
Technical analysis: USD/INR keeps bullish vibe in the longer term
The Indian Rupee trades weaker on the day. The bullish outlook of the USD/INR pair remains intact as the pair has been making higher highs and higher lows since the start of June, and holding above the key 100-day Exponential Moving Average (EMA) on the daily chart. The upward momentum is supported by the 14-day Relative Strength Index (RSI), which stands in bullish territory around 55.50.
In the bullish case, the immediate resistance level for the pair will emerge at 83.60 (high of June 11). Any follow-through buying above this level will pave the way to 83.72 (high of April 17) en route to the 84.00 psychological mark.
On the flip side, the key support level for USD/INR is located at 83.35 (100-day EMA). A breach of this level could expose 83.00 (round figure), followed by 82.78 (low of January 15).
US Dollar price this week
The table below shows the percentage change of US Dollar (USD) against listed major currencies this week. US Dollar was the weakest against the Euro.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | -0.18% | -0.09% | 0.01% | -0.07% | 0.13% | 0.30% | -0.11% | |
| EUR | 0.18% | 0.08% | 0.19% | 0.11% | 0.33% | 0.47% | 0.06% | |
| GBP | 0.09% | -0.07% | 0.10% | 0.03% | 0.24% | 0.37% | -0.02% | |
| CAD | -0.01% | -0.20% | -0.12% | -0.07% | 0.14% | 0.28% | -0.12% | |
| AUD | 0.09% | -0.11% | -0.03% | 0.08% | 0.21% | 0.36% | -0.06% | |
| JPY | -0.14% | -0.33% | -0.26% | -0.11% | -0.22% | 0.16% | -0.28% | |
| NZD | -0.30% | -0.49% | -0.39% | -0.29% | -0.37% | -0.18% | -0.39% | |
| CHF | 0.12% | -0.06% | 0.02% | 0.13% | 0.05% | 0.28% | 0.41% |
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).
Fed FAQs
Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.
The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions. The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.
In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.
Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.