- Indian Rupee declines in Asian trading hours on Tuesday.
- Capital outflows from Indian stocks, higher oil prices and a stronger US Dollar undermine the INR.
- Traders await Fed speeches ahead of RBI rate decision.
The Indian Rupee (INR) weakens on Tuesday amid selling pressure from foreign funds and weak tone in domestic markets. Furthermore, rising crude oil prices and escalating geopolitical tensions between Israel and Iran are contributing to the decline in the INR.
Traders will be watching speeches by Raphael Bostic, Phillip Jefferson and Susan Collins of the US Federal Reserve (Fed) on Tuesday. Any dovish comments from Fed officials could weigh on the dollar and limit the local currency’s decline. On Wednesday, the Reserve Bank of India’s (RBI) interest rate decision will be in the spotlight.
Daily Market Summary: Indian Rupee Looks Fragile Amid Global Challenges
- “We expect the rupee to trade with a negative bias due to selling pressure from foreign funds and weak tone in domestic markets. Escalating tensions between Israel and Iran could put further pressure on the rupee,” said Anuj Choudhary, Analyst Research at Sharekhan by BNP Paribas.
- India’s foreign exchange reserves rose by $12.588 billion to a new all-time high of $704.885 billion in the week ended September 27, the Reserve Bank of India said on Friday.
- Indian Commerce Minister Piyush Goyal on Monday said it is time for the INR to appreciate thanks to capital inflows into the debt and equity markets.
- Federal Reserve Bank of St. Louis President Alberto Musalem stated Monday that he supports further interest rate cuts as the economy moves on a healthy path. However, he stressed that it is appropriate for the Fed to be cautious and not overdo it in easing monetary policy, according to Reuters.
- Minneapolis Fed President Neel Kashkari said Monday that the Fed welcomed September’s strong jobs report, which indicates a firm economy. Kashkari added that the balance of risks shifted from “high inflation to perhaps higher unemployment.”
Technical Analysis: USD/INR constructive outlook persists
The Indian Rupee is trading weaker on the day. The positive picture of the USD/INR pair remains intact, with the pair holding above the 100-day exponential moving average (EMA) on the daily time frame. The bullish outlook seems favorable as the 14-day Relative Strength Index (RSI) is above the midline near 60.70.
The upper boundary of the rectangle and the psychological mark near 84.00 act as a key resistance level for USD/INR. Any sustained buying above this level could draw some buyers towards the all-time high of 84.15, followed by 84.50.
On the downside, the first bearish target to watch is 83.80, the October 1 low. Sustained bearish momentum could pave the way towards the 100-day EMA at 83.66. The next level of containment is seen at 83.00, representing the round mark 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.
