- The Indian Rupee is stable in the Asian session on Wednesday.
- Firmer bets on Fed rate cuts and robust USD selling weigh on the pair, but higher oil prices could limit its downside.
- The Fed’s rate decision will be in focus on Wednesday.
The Indian Rupee (INR) is trading unchanged on Wednesday after rising to a one-month high of 83.75 in the previous session. The pair’s decline is pressured by rising expectations of a deeper rate cut from the Federal Reserve (Fed) and robust selling of the US Dollar. However, the prolonged recovery in crude oil prices could weigh on the local currency and help limit USD/INR losses.
Later on Wednesday, all eyes will be on the Fed’s interest rate decision, which is widely expected to cut rates at its September meeting. Fed officials will also release a Summary of Economic Projections, or ‘dot plot’ after the policy meeting, which could give an idea of how much the US central bank plans to cut in the coming year. The expectation of significant rate cuts could put some selling pressure on the dollar in the near term.
Daily Market Wrap: Indian Rupee Steady Ahead of Key US Event
- India’s Wholesale Price Index (WPI)-based inflation eased to a four-month low of 1.31% year-on-year in August from 2.04% in the previous reading. This was below the market consensus of 1.80%.
- India’s merchandise trade deficit stood at $29.65 billion in August, up from $23.5 billion in July, according to data from the Ministry of Commerce and Industry released on Tuesday.
- India’s foreign exchange reserves rose to a record high of $689.2 billion as of September 6, according to the Reserve Bank of India (RBI).
- US retail sales unexpectedly rose 0.1% on a monthly basis in August versus 1.1% previously, above the market consensus of -0.2%. Industrial production rose 0.8% on a monthly basis in August, compared with a 0.6% drop in the previous reading, better than the 0.2% estimate.
- According to the CME Fedwatch tool, federal funds futures have priced in a nearly 63% probability of a 50 basis point (bps) rate cut, up from 30% a week ago, while the probability of a 25 bps cut was 37%.
Technical Analysis: Positive outlook for USD/INR prevails in the long term
The Indian Rupee is trading unchanged on the day. The USD/INR pair is hovering inside the rectangle on the daily chart. However, in the long term, the pair maintains the bullish vibe as the price is holding above the key 100-day exponential moving average (EMA). Further decline cannot be ruled out as the 14-day relative strength index (RSI) is in the bearish zone below the midline, supporting the sellers for the time being.
The 83.90-84.00 zone seems to be a tough nut to crack for USD/INR buyers. This region represents the upper boundary of the rectangle and the psychological mark. A break above the mentioned level will see the next bullish barrier at 84.50.
On the other hand, the initial support level lies at the September 17 low at 83.70. A break of this level will pave the way towards the 100-day EMA at 83.64.
Indian Rupee FAQs
The Indian Rupee (INR) is one of the most sensitive currencies to external factors. The price of crude oil (the country relies heavily on imported oil), the value of the US Dollar (most trade is done in US Dollars) and the level of foreign investment are all influential factors. Direct intervention by the Reserve Bank of India (RBI) in the foreign exchange markets to keep the exchange rate stable, as well as the level of interest rates set by the RBI, are other important factors that influence the Rupee.
The Reserve Bank of India (RBI) actively intervenes in the foreign exchange markets to maintain a stable exchange rate and help facilitate trade. In addition, the RBI attempts to keep the inflation rate at its target of 4% by adjusting interest rates. Higher interest rates typically strengthen the Rupee. This is due to the role of the “carry trade,” where investors borrow from countries with lower interest rates 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, economic growth rate (GDP), trade balance, and foreign investment inflows. A higher growth rate can lead to higher overseas investment, increasing demand for the Rupee. A less negative trade balance will eventually lead to a stronger Rupee. Higher interest rates, especially real rates (interest rates minus inflation) are also positive for the Rupee. A risk-off environment can lead to higher foreign direct and indirect investment (FDI and FII) inflows, which also benefit the Rupee.
Higher inflation, particularly if it is comparatively higher than other countries, is generally negative for the currency as it reflects a devaluation through excess supply. Inflation also increases the cost of exports, leading to more rupees being sold to buy foreign imports, which is negative for the Indian Rupee. At the same time, higher inflation usually leads the Reserve Bank of India (RBI) to raise interest rates and this can be positive for the Rupee, due to increased demand from international investors. The opposite effect applies to lower inflation.
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
