USD/INR extends recovery ahead of Fed rate decision
- Indian Rupee loses momentum on the month-end US dollar (USD) demand on Tuesday.
- The positive outlook in the Indian economy continues to boost Indian equities and might strengthen the INR in the near term.
- The Federal Reserve’s (Fed) interest rate decision and press conference on Wednesday will be closely watched.
Indian Rupee (INR) extends its downside on Tuesday amid month-end US dollar (USD) demand from importers. On Monday, the Indian Rupee edged lower to its worst intraday fall in more than two weeks as weakness in major Asian currencies exerts some selling pressure on the local currencies. However, the continuous confidence and optimism in India’s economic stability continue to support Indian equities, and this might lift the INR in the near term.
Market players will monitor the Federal Reserve’s (Fed) interest rate decision and the press conference on Wednesday. A cautious tone from Fed Chair Jerome Powell could boost the Greenback further and create a tailwind for the pair. Also, the ISM Manufacturing PMI data and the US employment report this week might offer some insights about the interest rate outlook. On the Indian docket, India’s HSBC Manufacturing PMI for April will be released on Thursday.
Daily Digest Market Movers: Indian Rupee remains vulnerable despite the positive economic outlook
- The Indian economy is estimated to grow faster than 7% in this financial year, according to the National Council of Applied Economic Research (NCAER) on Monday.
- Nifty had slipped 2.5% in January 2023 amid the Foreign Institutional Investors (FIIs) sell-off. However, so far this April, the Nifty holds a monthly gain of 0.4%.
- India’s foreign exchange reserves contracted by $2.83 billion to $640.33 billion as of April 19, according to the Reserve Bank of India (RBI).
- India’s HSBC Manufacturing PMI is expected to remain unchanged at 59.1 in April.
- The US Federal Reserve (Fed) is widely anticipated to hold rates steady at a more than two-decade high after their meeting on Wednesday.
- Financial markets expect only one Fed rate cut in 2024, below the roughly six quarter-point cuts they expected at the beginning of the year.
Technical analysis: USD/INR keeps the bullish vibe in the longer term
The Indian Rupee trades weaker on the day. USD/INR maintains the bullish outlook unchanged as the pair is above the key 100-day Exponential Moving Average (EMA) on the daily timeframe. The upward momentum is backed by the 14-day Relative Strength Index (RSI), which holds in bullish territory around 55, suggesting the support zone is likely to hold rather than break.
The immediate resistance level for the pair will emerge near a high of April 15 at 83.50. A sustained bullish move will pave the way to the next upside target near an all-time high of 83.72, en route to the 84.00 psychological round mark. On the downside, a decisive break below a low of April 26 at 83.23 could drag USD/INR back to 83.15, portraying the confluence of the 100-day EMA and a low of April 10. Further south, the next contention level is seen near a low of January 15 at 82.78.
US Dollar price in the last 7 days
The table below shows the percentage change of US Dollar (USD) against listed major currencies in the last 7 days. US Dollar was the strongest against the Japanese Yen.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | -0.46% | -1.54% | -0.09% | -1.18% | 1.24% | -0.36% | -0.03% | |
| EUR | 0.46% | -1.07% | 0.37% | -0.71% | 1.63% | 0.11% | 0.41% | |
| GBP | 1.51% | 1.06% | 1.43% | 0.35% | 2.73% | 1.16% | 1.49% | |
| CAD | 0.09% | -0.37% | -1.44% | -1.08% | 1.32% | -0.27% | 0.05% | |
| AUD | 1.17% | 0.70% | -0.36% | 1.07% | 2.39% | 0.81% | 1.12% | |
| JPY | -1.26% | -1.71% | -2.82% | -1.34% | -2.45% | -1.60% | -1.29% | |
| NZD | 0.37% | -0.09% | -1.17% | 0.27% | -0.80% | 1.60% | 0.30% | |
| CHF | 0.05% | -0.41% | -1.50% | -0.05% | -1.12% | 1.27% | -0.31% |
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).
RBI FAQs
The role of the Reserve Bank of India (RBI), in its own words, is ‘..to maintain price stability while keeping in mind the objective of growth.” This involves maintaining the inflation rate at a stable 4% level primarily using the tool of interest rates. The RBI also maintains the exchange rate at a level that will not cause excess volatility and problems for exporters and importers, since India’s economy is heavily reliant on foreign trade, especially Oil.
The RBI formally meets at six bi-monthly meetings a year to discuss its monetary policy and, if necessary, adjust interest rates. When inflation is too high (above its 4% target), the RBI will normally raise interest rates to deter borrowing and spending, which can support the Rupee (INR). If inflation falls too far below target, the RBI might cut rates to encourage more lending, which can be negative for INR.
Due to the importance of trade to the economy, the Reserve Bank of India (RBI) actively intervenes in FX markets to maintain the exchange rate within a limited range. It does this to ensure Indian importers and exporters are not exposed to unnecessary currency risk during periods of FX volatility. The RBI buys and sells Rupees in the spot market at key levels, and uses derivatives to hedge its positions.