- The Indian Rupee is trading with a bearish bias in the Asian session on Friday.
- Rising demand for USD from importers is undermining the INR, but RBI intervention and rising expectations of Fed rate cuts could limit its downside.
- The US jobs report for August will be in focus later on Friday.
The Indian Rupee (INR) extends its decline on Friday after retreating to its record closing low in the previous session. Traders remain on the lookout for possible interventions by the Reserve Bank of India (RBI) through USD selling, which prevented the INR from depreciating beyond the crucial 84 level. However, demand for US Dollars (USD) from oil importers and foreign portfolios could weigh on the local currency.
Investors will be keeping a close eye on US employment data for August on Friday, including Non-Farm Payrolls (NFP), Unemployment Rate and Average Hourly Earnings. Any signs of further weakness in the labour market could trigger expectations of a deeper rate cut by the Federal Reserve (Fed). This, in turn, could put some selling pressure on the Dollar, making other currencies such as the Indian Rupee more attractive.
Daily Market Wrap: Indian Rupee falls amid USD demand from importers
- “The rupee hits a new record low of Rs 83.99 per dollar as importers, foreign institutional investors (FPIs) and oil companies continue to buy even as the RBI ensures that it does not cross the psychological level of Rs 84.00 per dollar,” said Anil Kumar Bhansali, Head of Treasury and Managing Director, Finrex Treasury Advisors LLP.
- Private sector employment rose by 99,000 in August and annual wages rose 4.8% year-over-year, Automatic Data Processing (ADP) reported on Thursday. This followed the increase of 111,000 (revised from 122,000) seen in July and was well below the estimate of 145,000.
- US initial jobless claims rose to 227,000, compared with the previous reading of 232,000 (revised from 231,000) and below the initial consensus of 231,000.
- The US ISM Services PMI rose to 51.5 in August from 51.4 in July, beating the estimate of 51.1.
- Chicago Fed President Austan Goolsbee said Friday that long-term trends in labor market data and inflation warrant the Fed easing interest rate policy soon, and then steadily over the next year.
Technical Analysis: The overall trend of the USD/INR remains constructive
The Indian Rupee is weakening on the day. The USD/INR pair remains confined within an ascending triangle on the daily chart. However, in the long term, the pair keeps the bullish vibe unchanged as the price remains above the key 100-day exponential moving average (EMA). The bullish momentum is reinforced by the 14-day Relative Strength Index (RSI) which is in the bullish territory near 59.55, supporting the short-term buyers.
Sustained trading above the 84.00-84.05 zone, the confluence of the psychological figure, the upper boundary of the triangle and the September 4 high, could see an upside breakout that could take USD/INR towards 84.50.
Any further selling could drag the pair towards the ascending triangle support near 83.90. A break below this level could revisit the 100-day EMA at 83.64.
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.
