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USD/INR remains in positive territory, focus is on FOMC meeting minutes

  • The Indian Rupee loses momentum due to renewed demand for the Dollar.
  • Sustained demand for the dollar from state and foreign banks, capital outflows from abroad and rising crude oil prices could limit the rise of the Indian rupee.
  • Minutes from the FOMC meeting will be released on Tuesday.

The Indian Rupee (INR) loses recovery momentum on Tuesday amid renewed demand for the US Dollar (USD). On Monday, the Indian Rupee ended lower, matching its all-time closing low at 83.34, as the decline in the US Dollar (USD) offset the impact of rising crude oil prices. According to S&P Global Ratings, the Indian economy would be somewhat less influenced by global uncertainties due to the country’s domestic orientation.

However, renewed demand for dollars from state and foreign banks and outflows of foreign funds could put some selling pressure on the INR in the short term. Markets will focus attention on the Federal Open Market Committee (FOMC) meeting minutes due to be released on Tuesday, which could offer clues on the future direction of the monetary policy rate and improving inflation amid a quiet day in terms of economic data release.

Daily Market Summary: Indian Rupee Remains Under Pressure Amid Multiple Challenges

  • India will be a $7 trillion economy by 2030 if the current growth trajectory is maintained, Chief Economic Advisor (CEA) V. Anantha Nageswaran said on Saturday.
  • Rising crude oil prices, foreign fund outflows and weakness in domestic equities weighed on Indian investor sentiment.
  • According to a report in the monthly bulletin of the Reserve Bank of India (RBI), the momentum in the change in Indian GDP is estimated to be higher in October-December due to “effervescent” festive demand.
  • According to the RBI, the Indian economy is expected to grow at a rate of 6.5% per year between 2023 and 2024. The International Monetary Fund (IMF) has estimated growth of 6.3% per year until 2028.
  • The Reserve Bank of India is expected to hold the rate on hold during its next policy meeting, scheduled for December 6-8.
  • The Indian Consumer Price Index (CPI) rose 4.87% year-on-year in October from 5.02% previously, above the market consensus of 4.80%.
  • The US leading indicator for October fell 0.8% month-on-month from the previous reading of a decline of 0.7% month-on-month, the Conference Board revealed on Monday.
  • Investors expect the US Federal Reserve (Fed) to begin cutting rates around mid-2024.
  • According to the CME’s FedWatch tool, money market futures have priced in a 50% chance of a rate cut of at least 25 basis points (bps) by May 2024.

Technical Analysis: Indian Rupee maintains negative outlook

The Indian rupee is trading lower. The USD/INR pair has traded within a range of 82.80-83.35 since September. Technically, USD/INR maintains a bullish bias as the pair remains above the 100-day EMA on the daily chart. The 14-day Relative Strength Index (RSI) remains above the midline of 50, supporting this outlook.

The upper limit of the trading range at 83.35 acts as an immediate resistance level for the pair. Breaking that level will hit the year’s high at 83.47. The next bullish target is located at 84.00.

On the opposite side, an initial support level for USD/INR lies near the confluence of the lower bound of the range and the September 12 low at 82.80. A decisive break below that level would cause a drop to the August 11 low at 82.60, on the way to the August 24 low at 82.37.

Indian Rupee FAQ

What are the key factors driving the Indian Rupee?

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 Reserve Bank of India’s (RBI) direct intervention 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. .

How do the decisions of the Reserve Bank of India affect the Indian 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.

What macroeconomic factors influence the value of the Indian Rupee?

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.

How does inflation affect the Indian 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

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