USD/INR weakens on Indian equity inflows, traders await US PCE data

VaselineAugust 30, 2024

0 4 minutes read

USD/INR weakens on Indian equity inflows, traders await US PCE data

The Indian rupee strengthens in the Asian session on Friday.
A positive trend in Indian stocks is supporting the INR, while higher crude oil prices could limit its upside.
Quarterly GDP for the first quarter and US PCE inflation data will be in focus on Friday.

Indian rupee (INR) gains on Friday despite stronger US dollar. India’s increased weight in the MSCI Emerging Market Index could lead to significant foreign investment, stabilizing the INR in the short term. However, the recovery in crude oil prices could limit the upside for the local currency as India is the world’s third-largest oil importer and consumer.

India’s quarterly GDP for the first quarter of fiscal year 2024-25 (FY25) is due on Friday, which is expected to grow by 6.9% year-on-year in Q1. On the US file, data on personal consumption expenditure (PCE) inflation will be in focus as it could provide some clues as to whether the Fed will implement a 25 or 50 basis point (bps) rate cut at its next meeting in September.

Daily Digest Market Movers: Indian Rupee is influenced by domestic equity inflows and global factors

The increased weighting of Indian stocks in MSCI’s emerging market index starting Friday is expected to attract inflows of up to $3 billion, according to Nuvama Alternative and Quantitative Research.
Annualized US gross domestic product (GDP) growth for the second quarter (Q2) was revised up to 3.0% from 2.8% in the initial estimate, better than the 2.8% expected, according to the Bureau of Economic Analysis (BEA) Thursday.
The number of Americans who filed new claims for unemployment benefits for the week ended August 24 fell to 231,000 from 233,000 the previous week. This figure was below the consensus of 232K.
Atlanta Fed President Raphael Bostic said on Thursday that inflation still has some way to go, adding that the Fed should wait for more data from employment and inflation reports before cutting rates.
According to the CME FedWatch tool, rate futures markets are now pricing in a nearly 66% chance of a 25 basis point (bps) rate cut in September, but the odds of a deeper rate cut are 34%, down from to 36.5% ahead of US GDP data.

Technical Analysis: USD/INR’s broader trend remains constructive

The Indian Rupee is trading stronger today. The USD/INR pair faced a rejection from the 84.00 barrier on Wednesday, but the bullish outlook remains intact as the pair is above the 100-day exponential moving average (EMA) on the daily time frame. However, further short-term consolidation cannot be ruled out as the 14-day Relative Strength Index (RSI) is hovering around the midline, indicating neutral momentum for USD/INR.

The uptrend line and the psychological level of 84.00 seem to be a tough nut to crack for the pair. Sustained bullish momentum will see a rise to a record high of 84.24 en route to 84.50.

On the other hand, the first downside target is located near the August 20 low at 83.77. Any further selling will see a decline to the 100-day EMA at 83.61.

The price in US dollars today

The table below shows the percentage change of the US dollar (USD) against the major currencies listed today. The US dollar was weakest against the Japanese yen.

	USD	EURO	GBP	CAD	AUD	JPY	NZD	CHF
USD		0.04%	0.00%	-0.02%	-0.09%	-0.12%	-0.06%	0.04%
EURO	-0.04%		-0.04%	-0.07%	-0.13%	-0.16%	-0.10%	-0.01%
GBP	0.00%	0.04%		-0.05%	-0.10%	-0.12%	-0.08%	0.04%
CAD	0.02%	0.07%	0.04%		-0.06%	-0.10%	-0.02%	0.07%
AUD	0.09%	0.13%	0.09%	0.06%		-0.03%	0.02%	0.12%
JPY	0.12%	0.16%	0.13%	0.08%	0.03%		0.05%	0.15%
NZD	0.05%	0.11%	0.06%	0.02%	-0.03%	-0.06%		0.10%
CHF	-0.04%	0.00%	-0.04%	-0.08%	-0.14%	-0.16%	-0.10%

The heatmap shows the percentage changes of major currencies against each other. The base currency is chosen from the left column, while the quoted currency is chosen from the top row. For example, if you choose Euro in the left column and move along the horizontal line to Japanese Yen, the percentage change shown in the box will be EUR (base)/JPY (quote).

Frequently Asked Questions about the Indian Rupee

The Indian Rupee (INR) is one of the most sensitive currencies to external factors. The price of crude oil (the country is heavily dependent on imported oil), the value of the US dollar – most trade is done in USD – and the level of foreign investment are all influential. Direct intervention of 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 major influencing factors on the rupee.

The Reserve Bank of India (RBI) actively intervenes in the foreign exchange markets to maintain a stable exchange rate to help facilitate trade. In addition, the RBI is trying to maintain the inflation rate at the target of 4% by adjusting interest rates. Higher interest rates usually strengthen the rupee. This is due to the role of “carry trade” where investors borrow in countries with lower interest rates so that they place their money in countries that offer relatively higher interest rates and profit from the difference.

Macroeconomic factors that influence the value of the rupee include inflation, interest rates, the rate of economic growth (GDP), trade balance and foreign investment flows. A higher growth rate can lead to more investment abroad, increasing demand for the rupee. A less negative trade balance will ultimately lead to a stronger rupee. Higher interest rates, especially real rates (interest rates minus inflation) are also positive for the rupee. A risk-on environment may lead to higher foreign direct and indirect investment (FDI and FII) inflows, which also benefits the rupee.

Higher inflation, especially if it is comparatively higher than India’s, is generally negative for the currency as it reflects devaluation through oversupply. Inflation also increases the cost of exports, resulting in more rupees being sold to buy foreign imports, which is negative for the rupee. 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 for lower inflation.

VaselineAugust 30, 2024

0 4 minutes read