- The Indian Rupee is trading flat in the Asian session on Monday.
- The combination of lower crude oil prices, strong foreign capital inflows and higher Fed rate expectations support the NRI.
- Investors are awaiting India’s trade balance and the US Empire State Manufacturing Index, due on Monday.
The Indian Rupee (INR) is holding steady on Monday despite a weaker US Dollar (USD). Falling crude oil prices, strong foreign institutional (FII) inflows into the Indian stock market and odds of a significant rate cut by the Federal Reserve (Fed) at its upcoming monetary policy meeting on Wednesday could support the INR.
However, continued USD buying by importers and risk aversion ahead of the key event could boost the dollar. Looking ahead, India’s trade balance and the US Empire State Manufacturing Index will be released on Monday. India’s Wholesale Price Index (WPI) and US Retail Sales for August will be released on Tuesday. The US Federal Reserve (Fed) interest rate decision will be the highlight event on Wednesday.
Daily Market Wrap: Indian Rupee remains flat despite softer USD and lower crude oil prices
- On Friday, the BSE Sensex closed 72 points lower, down 0.1 per cent, while the NSE Nifty was 32 points lower, down 0.1 per cent. Bajaj Finserv, Axis Bank and Wipro were among the top gainers.
- “The US dollar index has fallen from a low of 106 to around 101 over the past three months. Simultaneously, Asian currencies have appreciated against the greenback. Likely interest rate cuts by the US Fed, a sharp fall in crude oil prices and continued foreign institutional capital inflows into Indian stock markets are supporting factors for the rupee. However, the local currency has not appreciated; rather, it remains weak against the US dollar,” said Amit Pabari, MD, CR Forex Advisors.
- Reserve Bank of India Governor Shaktikanta Das said the country’s expected growth rate for the next few years stood at 7.5%, with room for upside.
- The University of Michigan’s consumer sentiment index rose to 69.0 in September from 67.9 in August, better than the estimate of 68.0.
- Markets are now pricing in a 48% chance of a 25 basis point (bps) US rate cut on September 17-18, while the probability of a 50 bps cut stands at 52%, according to the CME’s FedWatch tool.
Technical Analysis: USD/INR’s constructive outlook remains
The Indian Rupee is trading flat on the day. The USD/INR pair has broken below an ascending triangle on the daily chart. However, on a longer-term basis, the pair maintains the bullish vibe as it remains above the 100-day exponential moving average (EMA). Further consolidation cannot be ruled out as the 14-day relative strength index (RSI) remains around the midline, indicating the neutral momentum of the pair.
A sustained upside pressure beyond the 84.00-84.05 region, the confluence of the psychological figure, the upper boundary of the triangle and the September 11 high could lead USD/INR to the next upside barriers at 84.50.
On the other hand, the initial support level emerges at 83.84, the low of August 30. A break below this level could pave the way towards the 100-day EMA at 83.68.
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 4% target 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.
