USD/INR recovers ahead of US PCE data

Vaseline3 weeks ago

0 3 minutes read

The Indian rupee softens in the Asian session on Friday.
Importer’s USD bids at the end of the month and likely unwinding of the position affects the INR.
August US PCE price index data will be in focus on Friday.

The Indian rupee (INR) lost momentum on Friday amid renewed demand for US dollars (USD) from importers linked to month-end payments and likely unfreezing of long positions. However, a fall in crude oil prices and a robust trend in Indian equities could help limit the INR’s losses.

Investors will closely monitor the release of the US personal consumption expenditure (PCE) price index, the Fed’s preferred gauge of inflation, on Friday. Core PCE is expected to show an increase of 2.3% year-on-year in August, while core PCE is expected to show an increase of 2.7% year-on-year in the same report. Also, the Michigan Consumer Sentiment Index for September will be released later in the day.

Daily Digest Market Movers: Indian rupee falls on USD demand linked to month-end payments

“During the week, the (dollar-rupee) pair opened lower, only to bounce back as importers rush to meet month-end dollar demand, causing USD/INR to close higher” , said Amit Pabari, managing director at FX consultancy CR. Forex.
India’s Sensex rose 666.25 points to settle at an all-time high of 85,836.12, while the Nifty rose 211.90 points to hit a record high of 26,216.05.
US durable goods orders were flat in August, compared with a 9.9% increase in July, according to the US Census Bureau. This figure came in better than the estimate of a 2.6% decline.
US gross domestic product (GDP) grew at an annual rate of 3.0% in the second quarter (Q2), as previously estimated, the US Bureau of Economic Analysis (BEA) showed on Thursday.
Fed Governor Lisa Cook said on Thursday she approved cutting interest rates by 50 basis points last week as a way to address increased “downside risks” to employment, according to Reuters.

Technical Analysis: USD/INR bearish outlook remains intact

Indian rupee weakens on that day. Technically, the USD/INR pair maintains a negative view on the daily chart as the price remains capped below the 100-day exponential moving average (EMA). The downward momentum is reinforced by the 14-day Relative Strength Index (RSI), which is below the median line near 39.30, suggesting that further decline cannot be ruled out.

The September 23 low acts as an initial support level for USD/INR. Sustained trading below this level could take the pair down to 83.00, representing the psychological level and May 24 low.

On the other hand, a decisive break above the 100-day EMA at 83.62 could set the pair up for a retest of the support-turned-resistance level at 83.75. The additional filter to watch is the round mark 84.00.

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 highly 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.

Vaseline3 weeks ago

0 3 minutes read

Daily Digest Market Movers: Indian rupee falls on USD demand linked to month-end payments

Technical Analysis: USD/INR bearish outlook remains intact

Frequently Asked Questions about the Indian Rupee

Vaseline

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