USD/INR gathers strength on renewed US Dollar demand, Fed’s Powell speech looms
- The Indian Rupee trades in negative territory in Tuesday’s Asian session.
- Higher US bond yields and further gains in crude oil prices weigh on the local currency.
- The Federal Reserve’s (Fed) Chairman Jerome Powell’s speech on Tuesday will be closely watched.
The Indian Rupee (INR) weakens on Tuesday amid the renewed US Dollar (USD) demand and higher US bond yields. Meanwhile, the further rise of crude oil prices amid fears of Middle East geopolitical risks exerts some selling pressure on the INR as India is the world’s third-largest oil consumer after the United States (US) and China.
Nonetheless, the optimism in the Indian economic outlook and portfolio inflows, including the country’s sovereign bonds on account of their inclusion in the JPMorgan emerging market debt index, might lift the local currency and cap the pair’s upside. Investors will closely watch the speech by Federal Reserve (Fed) Chairman Jerome Powell on Tuesday for fresh impetus. On Wednesday, the attention will shift to India’s HSBC Services Purchasing Managers Index (PMI) for June. Any signs of further expansion in the Indian services sector might boost the Indian Rupee and create a headwind for the pair.
Daily Digest Market Movers: Indian Rupee edges lower amid higher crude oil prices and US bond yields
- India’s HSBC Manufacturing PMI rose to 58.3 in June from the previous reading of 57.5, weaker than the expectation of 58.5.
- Indian Manufacturing PMI growth was boosted by a record-high rate of job creation. The employment rate was supported by buoyant demand conditions that fueled expansions in new orders, output levels, and procurement activities across the sector.
- Foreign investors bought 16.54 billion rupees ($198.4 million) in Indian bonds under the Fully Accessible Route, lower than the market expected.
- US Manufacturing PMI for June declined to 48.5 from 48.7 in May. This figure came in weaker than the estimation of 49.1, the Institute for Supply Management (ISM) reported Monday.
- Financial markets are now pricing in nearly 59.5% chance of 25 basis points (bps) of Fed rate cut in September, up from 58.2% last Friday, according to CME FedWatch Tool.
Technical analysis: USD/INR might face consolidation or downside in the near term
The Indian Rupee trades weaker on the day. The USD/INR pair remains stuck within the familiar trading range on the daily chart. The bullish trend of the pair remains intact above the key 100-day Exponential Moving Average (EMA). However, further consolidation or downside cannot be ruled out as the 14-day Relative Strength Index (RSI) holds in bearish territory below the 50-midline.
Consistent trading above 83.65, a high of June 26, may take USD/INR back to the all-time high of 83.75. An upside breakout might extend its upswing to the 84.00 psychological level.
On the downside, any follow-through selling below the 100-day EMA of 83.35 might drag the pair lower to the 83.00 round figure. A breach of this level will see a drop to 82.82, a low of January 12.
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 | 0.03% | 0.06% | 0.08% | 0.16% | 0.06% | 0.18% | 0.04% | |
| EUR | -0.03% | 0.01% | 0.04% | 0.13% | 0.01% | 0.15% | 0.01% | |
| GBP | -0.05% | -0.01% | 0.02% | 0.12% | -0.01% | 0.14% | -0.01% | |
| CAD | -0.06% | -0.03% | -0.01% | 0.09% | -0.02% | 0.12% | -0.02% | |
| AUD | -0.17% | -0.13% | -0.11% | -0.10% | -0.12% | 0.01% | -0.14% | |
| JPY | -0.05% | -0.02% | 0.01% | 0.02% | 0.11% | 0.13% | 0.00% | |
| NZD | -0.18% | -0.15% | -0.13% | -0.11% | -0.01% | -0.14% | -0.14% | |
| CHF | -0.05% | -0.01% | 0.00% | 0.03% | 0.13% | 0.00% | 0.14% |
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.