- Indian Rupee gains traction in Asian session on Friday.
- A weaker USD and portfolio inflows support the INR, while higher crude oil prices could limit its upside.
- Investors are awaiting Fed Chairman Harker’s speech on Friday.
The Indian Rupee (INR) is extending its gains on the back of a weakening US Dollar (USD) on Friday. The INR is trading near two-month highs, boosted by likely portfolio inflows and an appreciation in the Chinese Yuan after the US Federal Reserve (Fed) started its easing cycle with an unexpected 50 basis point rate cut at its September meeting. In addition, USD sales likely by large foreign banks on behalf of custodian clients are contributing to the rise in the local currency.
However, further rise in crude oil prices could limit the INR’s upside as India is the third largest consumer of oil after the United States (US) and China. Philadelphia Fed President Patrick Harker is scheduled to speak later on Friday.
Daily Market Wrap: Indian Rupee trades firmer amid supportive economic factors
- According to the Reserve Bank of India (RBI), foreign exchange reserves are expected to grow by USD 66 billion by 2024, reaching a total of USD 689.235 billion.
- “The recent rally in the rupee reflects favourable domestic conditions and the impact of changes in global monetary policy. As the Fed’s decisions continue to influence the markets, all eyes will be on the RBI’s response and whether the rupee can sustain its upward trajectory. For now, 84 will serve as a strong resistance level, while 83.50 will act as a robust support,” said Amit Pabari, Managing Director, CR Forex.
- U.S. initial jobless claims came in at 219,000 for the week ended Sept. 14, the U.S. Department of Labor (DoL) showed on Thursday. This was below the market consensus of 230,000 and down from the previous week’s 231,000 (revised from 230,000).
- U.S. existing home sales fell 2.5% month-on-month in August to 3.86 million from 3.96 million in July.
- The Philadelphia Fed manufacturing index unexpectedly rose to 1.7 in September, compared with a drop of 7 in the previous reading, better than the estimate of -1.
Technical Analysis: USD/INR resumes its broader downtrend
The Indian Rupee is trading stronger on the day. The bearish trend in the USD/INR pair is resuming as the pair broke below the rectangle and the 100-day exponential moving average (EMA) on the daily chart. The downside momentum is supported by the 14-day Relative Strength Index (RSI), which is below the midline near 32.40, supporting the sellers for the time being.
The initial support level for the pair emerges at 83.50, the low of July 17. A sustained bearish momentum could pave the way towards 83.31, the low of June 18. The next support level is seen at the psychological level of 83.00.
On the upside, the 100-day EMA at 83.64 will be the immediate resistance level for the USD/INR, followed by 83.75, the lower boundary of the rectangle. The key upside barrier to watch is the 83.90-84.00 zone.
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 target of 4% 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.
