- The Indian Rupee is trading in negative territory in the Asian session on Monday.
- USD month-end flows and possible RBI intervention support the pair.
- Investors will monitor the Fed’s Bowman speech on Monday.
The Indian Rupee (INR) weakens on Monday, pressured by month-end demand for US Dollars (USD) from importers and likely interventions by the Reserve Bank of India (RBI). However, strong inflows and lower crude oil prices could help limit INR losses.
Investors will focus on Fed Governor Michelle Bowman’s speech on Monday, which could offer some insight on the US interest rate. Additionally, the Chicago Purchasing Managers’ Index (PMI) will be released and the Dallas Fed Manufacturing Business Index. On the Indian agenda, the August federal fiscal deficit will be released later in the day.
Daily Market Summary: Indian Rupee weakens as USD demand weighs heavily
- The Indian Rupee has remained largely stable against the USD in the current calendar year (CY 2024), depreciating only 0.59% so far.
- Chief Economic Advisor (CEA) V Anantha Nageswaran on Friday said the Indian economy is estimated to grow at a rate of 6.5-7% in the current fiscal year on a steady-state basis.
- The Personal Consumption Expenditure (PCE) Price Index rose 2.2% year-on-year in August, compared with 2.5% in July, the US Bureau of Economic Analysis (BEA) showed on Friday. This figure was more lower than estimates of 2.3%.
- Core PCE, which excludes more volatile food and energy prices, rose 2.7% year-over-year in August, compared to the previous reading of 2.6%, in line with the consensus of 2.7%. On a monthly basis, the core PCE Price Index increased by 0.1% in the same reporting period compared to 0.2% previously.
- The University of Michigan Consumer Sentiment Index rose to 70.1 in September from 66.0 in August, better than estimates of 69.3.
- Interest rate futures contracts have priced in a nearly 54% chance of a half-point cut in November, versus a 46% chance of a quarter-point cut, according to the CME’s FedWatch tool.
Technical Analysis: USD/INR tests rectangle retracement, success could see upside resumption
The Indian Rupee is trading weaker on the day. According to the daily chart, the constructive bias of the USD/INR pair persists as the price remains above the key 100-day EMA. However, further decline looks favorable as the RSI is below the midline near 46.60.
The support-turned-resistance level at 83.75 acts as an immediate resistance level for USD/INR. Further north, the next barrier to the upside emerges at the psychological mark of 84.00.
Potential support level lies at the 100 EMA at 83.62. Any additional selling below this level will see a drop to 83.00, representing the psychological level and the May 24 low.
Indian Rupee FAQs
The Indian Rupee (INR) is one of the currencies most sensitive 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. The direct intervention of 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 influencing the Rupee. .
The Reserve Bank of India (RBI) actively intervenes in foreign exchange markets to maintain a stable exchange rate and help facilitate trade. Additionally, the RBI tries to keep the inflation rate at its target of 4% by adjusting interest rates. Higher interest rates tend to strengthen the Rupee. This is due to the role of the “carry trade”, in which investors borrow in countries with lower interest rates to park their money in countries that offer 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 more investment abroad, 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 environment can lead to higher inflows of foreign direct and indirect investment (FDI and FII), 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.
