USD/INR rebounds as Fed’s hawkish comments spur US Dollar demand
- Indian Rupee loses ground on Thursday on the firmer USD and the Fed governor’s hawkish comments.
- The INR’s downside might be limited by the potential intervention from the Indian central bank.
- The RBI is expected to hold rates steady in its April meeting amid strong economic growth and elevated inflation.
- The Annualized US GDP (Q4) growth number will be released on Thursday.
Indian Rupee (INR) edges lower on Thursday amid the higher demand for the US Dollar (USD) from oil importers and the hawkish remarks from the Federal Reserve (Fed) officials. Furthermore, the ongoing weakening of Asian peers will continue to exert pressure on the INR. However, the downside of INR might be capped on the back of the Reserve Bank of India's (RBI) intervention in the foreign exchange market to help limit the depreciation in INR.
The Indian Central Bank released its monetary policy committee (MPC) schedule for the upcoming financial year 2024–25, starting from April 1, 2024. The first policy meeting will be held from April 3–5, and the RBI is anticipated to keep interest rates unchanged until at least July amid strong economic growth and elevated inflation. Moving on, investors await the release of the US Gross Domestic Product Annualized (Q4) on Thursday, which is estimated to grow at a steady pace at 3.2%. The US February Personal Consumption Expenditures Price Index (PCE) data will take center stage on Friday even though the markets are closed for Good Friday.
Daily Digest Market Movers: Indian Rupee remains vulnerable despite the robust economic outlook
- India’s Current Account Deficit narrowed to $10.5 billion or 1.2% of Gross Domestic Product (GDP) in the fourth quarter (Q4) that ended December 2023 from $11.4 billion in the previous reading.
- Morgan Stanley has raised India’s GDP growth projection for FY 24-25 to 6.8% from 6.5% estimated earlier, citing the ongoing growth in industrial and capex activities.
- S&P Global raised India's GDP growth forecast for FY25 to 6.8%, lower than the RBI’s estimation of 7%. Furthermore, S&P expects RBI to cut rates by 75 bps by the end of this fiscal year.
- The Fed Governor Christopher Waller said early Thursday that the central bank is in no rush to cut the benchmark rate and may need to “maintain the current rate target for longer than expected.”
- Fed’s Waller further stated that he needs to see more inflation progress before supporting rate cuts.
Technical Analysis: Indian Rupee weakens, further upside is likely to remain limited
Indian Rupee trades on a softer note on the day. USD/INR extends its uptrend in the longer term since the pair rose above a multi-month-old descending trend channel last week.
In the near term, USD/INR remains above the key 100-day Exponential Moving Average (EMA) on the daily chart, with the 14-day Relative Strength Index holding above the 50 midline. This upward momentum of the pair indicates the support levels are more likely to hold than to break, and there’s more room for further upside.
The potential upside barrier for USD/INR will emerge at an all-time high of 83.49. A decisive break above this level will see a rally to 84.00 (round figure). On the downside, the initial support level is seen at 83.20 (high March 21), followed by 83.00 (psychological level, the 100-day EMA). A breach of the mentioned level could confirm that sellers are returning and ready to let the downtrend resume.
US Dollar price today
The table below shows the percentage change of US Dollar (USD) against listed major currencies today. US Dollar was the strongest against the Japanese Yen.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | -0.08% | -0.11% | -0.09% | -0.20% | 0.05% | -0.08% | -0.11% | |
| EUR | 0.07% | -0.03% | 0.01% | -0.12% | 0.16% | 0.00% | -0.02% | |
| GBP | 0.10% | 0.03% | 0.03% | -0.09% | 0.15% | 0.02% | 0.01% | |
| CAD | 0.08% | 0.00% | -0.01% | -0.12% | 0.12% | 0.00% | -0.02% | |
| AUD | 0.20% | 0.12% | 0.10% | 0.12% | 0.28% | 0.12% | 0.10% | |
| JPY | -0.05% | -0.11% | -0.15% | -0.12% | -0.23% | -0.13% | -0.17% | |
| NZD | 0.07% | 0.00% | -0.03% | 0.00% | -0.12% | 0.13% | -0.03% | |
| CHF | 0.09% | 0.02% | -0.01% | 0.02% | -0.10% | 0.17% | 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.