USD/INR extends rally, investors await Fed rate decision
- Indian Rupee loses traction on Tuesday amid a stronger USD.
- Fed is expected to hold rates steady in the range of 5.25%–5.50% at its March meeting.
- The US Fed interest rate decision on Wednesday will be the highlight of this week.
Indian Rupee (INR) weakens on Tuesday on US Dollar (USD) purchases by state-run banks. The lower speculation that the US Federal Reserve (Fed) may cut interest rates in June provides some support to the Greenback and lifts the USD/INR pair. The Fed is widely anticipated to hold rates steady for a fifth straight time at its March meeting on Wednesday and maintain a data approach to ensure inflation returns sustainably to its 2% target. Nonetheless, there is still a possibility that Fed officials might reduce the number of rate cuts to two from the three rate cuts they expected earlier this year.
Looking ahead, the US February Building Permits and Housing Starts are due on Tuesday. Investors will closely watch the US Fed interest rate decision on Wednesday and take more cues about the future trajectory of interest rates from Fed Chair Jerome Powell during the press conference. On Thursday, India’s S&P Global Manufacturing and Services PMI will be released.
Daily Digest Market Movers: Indian Rupee remains vulnerable amid global uncertainties
- Foreign investors purchased bonds worth about 100 billion Rupees ($1.21 billion) on a net basis in March, bringing the total net purchase to more than 375 billion Rupees in the first two months of 2024.
- Foreign portfolio investors increased their holdings of Indian government bonds by roughly 50% since the index inclusion news less than six months ago.
- India’s foreign exchange climbed from $6.55 billion to $625.63 billion in just two years, while Indian gold reserves rose from $569 million in 2021 to $48.4 billion this week in March 2024, according to the Reserve Bank of India (RBI).
- The Fed Chair Jerome Powell said earlier this month that the US central bank might cut its benchmark interest rate later this year, even though the continued progress on lowering inflation to the target “is not assured.”
- Investors have priced in nearly 73% odds that the Fed will cut rates in July, according to the CME FedWatch Tools.
Technical Analysis: Indian Rupee remains confined in a longer-term band between 82.60 and 83.15
Indian Rupee trades on a weaker note on the day. USD/INR sticks to the range bound theme within a multi-month-old descending trend channel around 82.60–83.15 since December 8, 2023.
From a technical perspective, the bearish outlook of USD/INR remains intact in the near term as the pair is below the key 100-day Exponential Moving Average (EMA) on the daily timeframe. However, the 14-day Relative Strength Index (RSI) returns above the 50.0 midline, indicating that further upside cannot be ruled out.
The first upside barrier will emerge near the 100-day EMA and a psychological mark at 83.00. Further strength could draw in USD/INR bulls and inspire another upswing to the upper boundary of the descending trend channel near 83.15. A decisive break above this level will see a rally to 83.35 (high of January 2), followed by the 84.00 round figure.
On the flip side, the initial support level for USD/INR is seen near a low of March 14 at 82.80. The key contention level is located at the lower limit of the descending trend channel at 82.60. Any follow-through selling could extend the pair’s downtrend to 82.45 (low of August 23), en route to 82.25 (low of June 1).
US Dollar price today
The table below shows the percentage change of US Dollar (USD) against listed major currencies today. US Dollar was the weakest against the Australian Dollar.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | -0.01% | 0.01% | 0.03% | -0.02% | 0.08% | 0.07% | 0.08% | |
| EUR | 0.00% | 0.01% | 0.02% | -0.02% | 0.10% | 0.07% | 0.09% | |
| GBP | -0.01% | -0.02% | 0.02% | -0.03% | 0.07% | 0.05% | 0.07% | |
| CAD | -0.03% | -0.03% | 0.00% | -0.05% | 0.07% | 0.04% | 0.06% | |
| AUD | 0.02% | 0.01% | 0.03% | 0.05% | 0.12% | 0.09% | 0.10% | |
| JPY | -0.10% | -0.06% | -0.09% | -0.08% | -0.10% | 0.01% | 0.00% | |
| NZD | -0.06% | -0.08% | -0.06% | -0.04% | -0.09% | 0.03% | 0.01% | |
| CHF | -0.09% | -0.10% | -0.08% | -0.06% | -0.11% | 0.00% | -0.02% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Euro from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent EUR (base)/JPY (quote).
Indian Rupee FAQs
The Indian Rupee (INR) is one of the most sensitive currencies to external factors. The price of Crude Oil (the country is highly dependent on imported Oil), the value of the US Dollar – most trade is conducted in USD – and the level of foreign investment, are all influential. Direct intervention by the Reserve Bank of India (RBI) in FX markets to keep the exchange rate stable, as well as the level of interest rates set by the RBI, are further major influencing factors on the Rupee.
The Reserve Bank of India (RBI) actively intervenes in forex markets to maintain a stable exchange rate, to help facilitate trade. In addition, the RBI tries to maintain the inflation rate at its 4% target by adjusting interest rates. Higher interest rates usually strengthen the Rupee. This is due to the role of the ‘carry trade’ in which investors borrow in countries with lower interest rates so as 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, the economic growth rate (GDP), the balance of trade, and inflows from foreign investment. A higher growth rate can lead to more overseas investment, pushing up demand for the Rupee. A less negative balance of trade will eventually lead to a stronger Rupee. Higher interest rates, especially real rates (interest rates less inflation) are also positive for the Rupee. A risk-on environment can lead to greater inflows of Foreign Direct and Indirect Investment (FDI and FII), which also benefit the Rupee.
Higher inflation, particularly, if it is comparatively higher than India’s peers, is generally negative for the currency as it reflects devaluation through oversupply. Inflation also increases the cost of exports, leading to more Rupees being sold to purchase foreign imports, which is Rupee-negative. At the same time, higher inflation usually leads to the Reserve Bank of India (RBI) raising interest rates and this can be positive for the Rupee, due to increased demand from international investors. The opposite effect is true of lower inflation.