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USD/INR declines ahead of Trump’s inauguration

  • The Indian Rupee gains traction in Monday’s early European session. 
  • Routine RBI intervention and lower oil prices underpin the INR; foreign outflows and renewed USD demand might cap its upside. 
  • Investors await Donald Trump’s presidential inauguration on Monday at 17:00 GMT. 

The Indian Rupee (INR) strengthens on Monday after logging its worst week in 18 months in the previous week. The frequent interventions by the Reserve Bank of India (RBI) and a decline in crude oil prices could help prevent sharper losses of the local currency. 

On the other hand, persistent foreign portfolio outflows and heightened US Dollar (USD) bids in the non-deliverable forwards (NDF) market might weigh on the INR. Investors will closely monitor the announcement of President-elect Donald Trump’s policies ahead of his inauguration at 17:00 GMT. The expectations of tariff policies under the Trump administration might drag the emerging market currencies, including the INR. 

Indian Rupee recovers ahead of Trump’s inauguration

  • India’s foreign exchange reserves dropped for the sixth consecutive week, reaching a 10-month low of $625.9 billion for the week ended January 10, according to the Reserve Bank of India (RBI).
  • Analysts noted that the Indian central bank has been cautious in deploying reserves to contain undue currency volatility amid strong global challenges. The foreign exchange reserves also include India’s reserve tranche position in the International Monetary Fund (IMF).
  • India’s economy is projected to grow by 6.7% in the next fiscal year starting in April, slightly higher than in the current fiscal year, according to the World Bank. The country’s growth rate in the current fiscal year is at 6.5%, down from 8.2% in the previous period.
  • US Housing Starts climbed by 15.8% from 1.294 million (revised from 1.289 million) to 1.499 million in December, beating the estimation of 1.32 million. 
  • The US Building Permits declined by 0.7% from 1.493 million (revised from 1.505 million) to 1.483 million, but above the market consensus of 1.46 million.  

USD/INR maintains its positive bias, oversold RSI warrants caution 

The Indian Rupee trades firmer on the day. The bullish trend of the USD/INR pair remains intact as the price has formed higher highs and higher lows while holding above the key 100-day Exponential Moving Average (EMA) on the daily timeframe. Nonetheless, the 14-day Relative Strength Index (RSI) reaches overbought territory beyond the 70.00 mark, suggesting that a temporary weakness or further consolidation cannot be ruled out in the near term. 

An all-time high of 86.69 appears to be a tough nut to crack for bulls. A sustained move above the mentioned level could set the stage for a run at the 87.00 psychological level. 

On the flip side, any follow-through selling below 86.30, the low of January 15, could see a drop to 85.85, the low of January 10. The additional downside filter to watch is 85.65, the low of January 7. 

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.