USD/INR loses momentum, geopolitical tensions eyed
- Indian Rupee gains traction on Tuesday, backed by the softer US Dollar.
- Higher oil prices amid the rising tensions in the Middle East and Eastern Europe could weigh on the INR.
- US Conference Board Consumer Confidence Index, Durable Goods Orders, and House Price Index will be released on Tuesday.
Indian Rupee (INR) recovers some lost ground on Tuesday amid the weaker US Dollar (USD). Nonetheless, the INR fell to an all-time low of 83.48 on Friday due to broad weakness in its Asian peers and the aggressive local demand for the USD. Meanwhile, the renewed USD demand and higher oil prices amid the escalating geopolitical tensions in the Middle East and Eastern Europe might drag the INR lower and cap the INR’s upside for the time being.
The US Consumer Confidence report by the Conference Board, Durable Goods Orders, and the FHFA’s House Price Index are due on Tuesday. Later this week, the US Gross Domestic Product Annualized (Q4) will be released on Thursday, which is expected to remain steady at 3.2%. Attention will shift to the US Personal Consumption Expenditures Price Index (PCE) data for February. The headline PCE is estimated to show an increase of 0.4% MoM, while the Core PCE is projected to rise by 0.3% MoM. On the Indian docket, the Indian Current Account data will be released on Thursday.
Daily Digest Market Movers: Indian Rupee stays firm despite global headwinds
- India’s foreign exchange reserves reached an all-time high of $642.49 billion for the week ended March 15, according to the Reserve Bank of India (RBI).
- The rise in foreign exchange reserves was boosted by the maturity of a $5 billion Dollar/Rupee swap that matured on March 11.
- India’s Gross Domestic Product (GDP) growth estimate for the current fiscal year has revised to 7.6% from 7.3%, signaling the strength of the Indian economy.
- The RBI is likely to keep the repo rate on hold at 6.50% at least until the end of Q2 of 2024 and expects to cut interest rates by 25 basis points (bps) in Q3 2024.
- The US February New Home Sales dropped 0.3% MoM from a 1.7% gain in January, below market expectations for a 2.3% MoM rise.
- The Dallas Fed Manufacturing Survey fell to -14.4 in March from the previous reading of -11.3.
Technical Analysis: Indian Rupee resumes longer-term uptrend
Indian Rupee trades strongly on the day. However, USD/INR resumes its upside in the longer term since the pair surged above a multi-month-old descending trend channel last week.
In the near term, the bullish outlook of USD/INR remains intact as the pair holds above the key 100-day Exponential Moving Average (EMA) on the daily chart. Additionally, the 14-day Relative Strength Index lies above the 50 midline, indicating there is still room for near-term USD/INR appreciation.
An all-time high of 83.49 remains a tough nut to crack for USD/INR buyers. A decisive break above this level will pave the way to the 84.00 psychological level. On the flip side, the resistance-turned-support level at 83.20 acts as an initial support level. The crucial contention level is seen at the confluence of the 100-day EMA and the round figure of the 83.00 mark.
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 weakest against the Australian Dollar.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | 0.29% | 0.67% | 0.35% | 0.26% | 1.47% | 1.26% | 1.43% | |
| EUR | -0.29% | 0.39% | 0.06% | -0.04% | 1.19% | 0.97% | 1.15% | |
| GBP | -0.67% | -0.38% | -0.32% | -0.42% | 0.80% | 0.59% | 0.77% | |
| CAD | -0.35% | -0.06% | 0.33% | -0.10% | 1.13% | 0.91% | 1.11% | |
| AUD | -0.25% | 0.05% | 0.42% | 0.11% | 1.24% | 1.02% | 1.19% | |
| JPY | -1.51% | -1.18% | -0.83% | -1.16% | -1.23% | -0.20% | -0.03% | |
| NZD | -1.27% | -0.98% | -0.60% | -0.92% | -1.02% | 0.23% | 0.17% | |
| CHF | -1.46% | -1.17% | -0.79% | -1.11% | -1.21% | 0.04% | -0.19% |
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.