- The Indian Rupee weakens in the Asian session on Friday.
- Month-end USD offers from importers and likely unwinding of positions weigh on INR.
- US August Personal Consumption Expenditure (PCE) Price Index data will be in the spotlight on Friday.
The Indian Rupee (INR) loses momentum on Friday amid renewed demand for the US Dollar (USD) from importers related to month-end payments and likely unwinding of long positions. However, a fall in crude oil prices and a robust trend in Indian stocks could help limit INR’s losses.
Investors will closely monitor the release of the US August Personal Consumption Expenditure (PCE) Price Index, the Fed’s preferred inflation gauge, on Friday. Headline PCE is expected to show a 2.3% year-on-year increase in August, while core PCE is estimated to show a 2.7% year-on-year increase in the same report. Additionally, the University of Michigan Consumer Sentiment Index for September will be released later in the day.
Daily Market Summary: Indian Rupee weakens on USD demand related to month-end payments
- “Over the week, the (dollar-rupee) pair has opened lower, only to rebound as importers rush to meet month-end demand for dollars, causing USD/INR to close higher ,” said Amit Pabari, CEO of FX advisory firm CR Forex.
- India’s Sensex rose 666.25 points to settle at an all-time high of 85,836.12, while the Nifty rose 211.90 points to hit a record high of 26,216.05.
- US durable goods orders were flat in August, compared with a 9.9% increase in July, according to the US Census Bureau. This figure was better than the estimate of a drop in 2.6%.
- US Gross Domestic Product (GDP) rose at an annual rate of 3.0% in the second quarter (Q2), as previously estimated, the US Bureau of Economic Analysis (BEA) showed on Thursday. .
- Fed Governor Lisa Cook stated on Thursday that she supported last week’s 50 basis point interest rate cut as a way to address increased “downside risks” to employment, according to Reuters.
Technical Analysis: USD/INR Bearish Outlook Remains Intact
The Indian Rupee weakens on the day. Technically, the USD/INR pair maintains a negative view on the daily chart as the price remains capped below the key 100-day EMA. The downward momentum is reinforced by the 14-day Relative Strength Index (RSI), which is below the midline near 39.30, suggesting that a further decline cannot be ruled out.
The September 23 low acts as an initial support level for USD/INR. Sustained trading below this level could lead the pair to fall to 83.00, representing the psychological level and the May 24 low.
To the upside, a decisive break above the 100-day EMA at 83.62 could set up the pair for a retest of the support-turned-resistance level at 83.75. The additional upside filter to watch is the round 84.00 mark.
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.
