The USD/INR pair is slightly higher on Monday ahead of the release of India’s Services PMI data. Despite a modest rebound in the USD, the Indian Rupee (INR) is trading weaker. However, the INR’s downside may be limited due to India’s strong GDP growth in the October-December quarter, which exceeded expectations.
On the other hand, renewed demand for the USD and delayed rate cut expectations from the Federal Reserve (Fed) could weigh on the INR in the short term. Nevertheless, the Reserve Bank of India (RBI) is expected to closely monitor foreign exchange markets and intervene if necessary to prevent excessive volatility in the exchange rate.
Investors will closely watch Fed Chair Jerome Powell’s testimony on Wednesday for insights into the economy and monetary policy. Additionally, US employment data, including Nonfarm Payrolls (NFP), Average Hourly Earnings, and Unemployment Rate, will be released on Friday.
In other news, India’s foreign exchange reserves increased, while US economic indicators, such as the ISM Manufacturing PMI and the University of Michigan Consumer Sentiment Index, came in weaker than expected.
Technically, the USD/INR pair is expected to remain range-bound between 82.70 and 83.20. Further downside could lead to support levels at 82.70 and 82.45, while upside resistance is seen at 83.00 and 83.35.
US Dollar price in the last 7 days
The table below shows the percentage change of US Dollar (USD) against listed major currencies in the last 7 days. US Dollar was the strongest against the New Zealand Dollar.
USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
USD | -0.24% | 0.06% | 0.41% | 0.71% | -0.16% | 1.43% | 0.19% | |
EUR | 0.23% | 0.30% | 0.64% | 0.94% | 0.08% | 1.66% | 0.42% | |
GBP | -0.06% | -0.30% | 0.35% | 0.65% | -0.21% | 1.37% | 0.13% | |
CAD | -0.41% | -0.65% | -0.37% | 0.31% | -0.58% | 1.03% | -0.23% | |
AUD | -0.73% | -0.95% | -0.65% | -0.30% | -0.87% | 0.73% | -0.53% | |
JPY | 0.16% | -0.08% | 0.27% | 0.57% | 0.89% | 1.59% | 0.34% | |
NZD | -1.46% | -1.69% | -1.39% | -1.03% | -0.73% | -1.60% | -1.26% | |
CHF | -0.19% | -0.42% | -0.13% | 0.23% | 0.53% | -0.35% | 1.25% |
INDIAN RUPEE FAQS
What are the main reasons propelling the Indian rupee?
The Indian rupee (INR) is one of the most vulnerable currencies to exogenous shocks. The price of crude oil (the nation is heavily reliant on imported oil), the value of the US dollar (most commerce is done in USD), and the degree of foreign investment are all important. Direct involvement of the Reserve Bank of India (RBI) in FX markets to keep the currency rate constant, as well as the RBI’s interest rate policy, are also key influencing factors on the rupee.
How do the Reserve Bank of India’s actions affect the Indian rupee?
The Reserve Bank of India (RBI) actively intervenes in currency markets to keep exchange rates steady and promote commerce. In addition, the RBI adjusts interest rates to keep inflation at its objective of 4%. Higher interest rates often boost the rupee. This is owing to the function of the ‘carry trade’, in which investors borrow in countries with lower interest rates in order to put their money in nations with higher interest rates and benefit from the difference.
Which macroeconomic variables impact the value of the Indian rupee?
Inflation, interest rates, the economic growth rate (GDP), the trade balance, and foreign investment inflows are all macroeconomic variables that impact the rupee’s value. A faster growth rate might lead to greater foreign investment, increasing demand for the rupee. A smaller negative trade deficit will ultimately result in a stronger rupee. Higher interest rates, particularly real rates (interest rates less inflation), are also beneficial to the Rupee. A risk-on climate might result in increased inflows of Foreign Direct and Indirect Investment (FDI and FII), which benefits the rupee.
How does inflation affect the Indian rupee?
greater inflation, especially if it is greater than India’s peers, is typically bad for the rupee since it signals depreciation due to overstock. Inflation also raises the cost of exports, causing more rupees to be sold to buy foreign imports, resulting in a negative rupee balance. At the same time, increasing inflation often leads to the Reserve Bank of India (RBI) boosting interest rates, which might benefit the rupee owing to increased demand from overseas investors. The reverse is true with lower inflation.