- The Indian Rupee weakens in the Asian session on Wednesday.
- Trump’s tariff threats undermine the INR, but significant inflows and RBI intervention could limit its decline.
- US core PCE inflation data will be closely watched.
The Indian Rupee (INR) extends its decline on Wednesday. The expectation that Donald Trump may impose high tariffs on imports in the US provides some support to the US Dollar (USD) and weighs on the local currency. Furthermore, the cautious stance of the Federal Reserve (Fed) could support the USD in the short term.
However, foreign capital inflows related to the restructuring of MSCI’s global equity indices could help limit INR’s losses. The fall of the Indian Rupee could be limited as the Reserve Bank of India (RBI) could intervene in the foreign exchange market to prevent the INR from depreciating. The US core Personal Consumption Expenditure (PCE) Price Index for October will be the highlight on Wednesday. Weekly initial jobless claims, pending home sales, Chicago PMI and durable goods orders will also be released.
Indian Rupee remains weak despite MSCI index restructuring
- The restructuring of the MSCI index significantly boosted the Indian stock market, attracting foreign investors who drove more than $1 billion in net buying.
- A large part of the Indian economy is experiencing an upward trend despite fluctuations, according to HSBC Global Research.
- Donald Trump said earlier Tuesday that he would announce a 25% tariff on all goods from Mexico and Canada from his first day in office and would impose an additional 10% tariff on goods from China.
- Minutes from the latest meeting of the Federal Open Market Committee (FOMC) indicated that monetary policymakers are taking a cautious approach to cutting interest rates as inflation is declining and the labor market remains strong.
- Financial markets are now pricing in a nearly 57.7% chance that the Fed will cut rates by a quarter point, up from 69.5% a month ago, according to CME’s FedWatch tool.
USD/INR maintains a bullish tone
The Indian Rupee is trading weaker on the day. The USD/INR pair maintains the bullish vibe within an ascending trend channel on the daily chart, with the price holding above the 100-day EMA. The bullish momentum is supported by the 14-day Relative Strength Index (RSI), which is above the midline near 55.30, suggesting that further upside looks favorable.
The crucial resistance level emerges in the 84.50-84.55 zone, representing the all-time high and the upper boundary of the trend channel. Sustained bullish momentum above this level could see a rally to the psychological mark of 85.00.
On the other hand, the lower boundary of the trend channel at 84.24 acts as an initial support level for USD/INR. The next level of containment is at 83.94, the 100-day EMA. The additional downside filter to watch is 83.65, the August 1 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. Furthermore, 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.
