USD/INR weakens as flows likely to boost Indian rupee

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USD/INR weakens as flows likely to boost Indian rupee

The Indian rupee gains ground in the Asian session on Friday.
Weaker USD and portfolio flows support the INR, while higher crude oil prices could limit its upside.
Investors await Harker’s Fed speech on Friday.

The Indian Rupee (INR) extends its lead against the weaker US Dollar (USD) on Friday. The INR is trading near two-month highs, supported by likely portfolio flows and an appreciation in the Chinese yuan after the US Federal Reserve (Fed) kicked off its easing cycle with an unexpected 50 basis point rate cut basis at its meeting in September. In addition, sales in USD likely from major foreign banks on behalf of custodial clients help boost the local currency.

However, further rise in crude oil prices could limit the upside for the INR as India is the third largest oil consumer after the United States (US) and China. Philadelphia Fed President Patrick Harker is scheduled to speak later on Friday.

Daily Digest Market Movers: Indian rupee trades firmer on favorable economic factors

According to the Reserve Bank of India (RBI), foreign reserves will increase by USD 66 billion in 2024 to a total of USD 689.235 billion.
“The recent rally in the rupee reflects favorable domestic conditions and the impact of global monetary policy changes. As Fed decisions continue to weigh on markets, all eyes will be on the Reserve Bank of India’s response and whether the rupee can maintain 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 at CR Forex.
Initial jobless claims were US weekly at 219,000 for the week ended September 14, the US Department of Labor (DoL) showed on Thursday. This figure was below the market consensus of 230K and lower than the previous week’s 231K (revised from 230K).
US existing home sales fell 2.5% 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 to a decline of 7 in the previous reading, better than the estimate of -1.

Technical Analysis: USD/INR is resuming its broader bearish trend

The Indian Rupee is trading stronger today. USD/INR’s downtrend resumes as the pair broke below the rectangle and 100-day exponential moving average (EMA) on the daily chart. Bearish momentum is supported by the 14-day Relative Strength Index (RSI), which is below the midline near 32.40, supporting sellers for now.

The initial support level for the pair appears at 83.50, the July 17 low. Bearish momentum could pave the way to 83.31, the June 18 low. The next level of depreciation is seen at the psychological mark of 83.00.

On the upside, the 100-day EMA at 83.64 will be the immediate resistance level for USD/INR, followed by 83.75, the lower boundary of the rectangle. The main barrier to watch is the 83.90-84.00 zone.

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 the “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 may lead to more investment abroad, pushing 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.

Vaseline3 weeks ago

0 3 minutes read

Daily Digest Market Movers: Indian rupee trades firmer on favorable economic factors

Technical Analysis: USD/INR is resuming its broader bearish trend

Frequently Asked Questions about the Indian Rupee

Vaseline

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