The Indian Rupee (INR) advances significantly at open against the US Dollar (USD) on Wednesday. The USD/INR pair posts a fresh three-week low near 88.10 as the US Dollar extended its weakness, with Federal Reserve (Fed) dovish expectations returning under the spotlight.
At the time of writing, the US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, trades 0.15% lower to near 98.85.
Apart from the weakness in the US Dollar, a report from Reuters has also confirmed the Reserve Bank of India’s (RBI) intervention into currency markets to restrict the USD/INR pair from passing its all-time high of around 89.10.
Indian central bank aggressively selling dollars to shore up rupee – traders, Reuters reported.
Meanwhile, the continuous outflow of foreign funds from the Indian stock market is expected to remain a key concern for the Indian Rupee. On Tuesday, Foreign Institutional Investors (FIIs) sold shares worth Rs. 1,508.53 crores in the Indian equity market. In the July-September period, FIIs sold equity shares worth Rs. 1,29,870.96 crores.
Overseas investors have been parting ways from the Indian secondary market due to ongoing trade tensions between the United States (US) and India over New Delhi’s purchasing oil from Russia. In spite of US-India trade worries, the International Monetary Fund (IMF) has raised India’s growth target for the current fiscal year to 6.6%, up 0.2% from its prior forecast. The agency stated that India’s strong growth momentum would offset the impact of higher US import duties on Indian goods.
Daily digest market movers: Fed officials warn of growing labor market concerns
- The US Dollar is weighed down by commentaries from Federal Open Market Committee (FOMC) members, including Chair Jerome Powell, citing the need for further monetary policy expansion in the wake of escalating labor market risks.
- On Tuesday, Fed’s Powell warned of softening job demand in a speech at the National Association for Business Economics (NABE) conference in Philadelphia, with economic growth remaining strong and inflation well above the desired 2% target.
- “Economic activity data are surprising to the upside, creating some tension with the labor market data,” Powell said. He added that the interest rate cut announcement by the Fed in September was “justified” amid “rising risks to the job market”.
- Separately, Fed Governor Michelle Bowman and Boston President Susan Collins also argued in favor of reducing interest rates further amid cooling job market conditions. “I continue to see two more cuts before the end of this year,” Bowman said, Reuters reported.
- According to the CME FedWatch tool, traders see a 94.6% that the Fed will reduce interest rates by 50 basis points (bps) to 3.50%-3.75% in the remaining year.
- Meanwhile, ongoing trade tensions between the US and China are also weighing on the US Dollar. The announcement from Beijing that it will begin charging additional port fees on ocean shipping firms, which move everything from holiday toys to crude oil, has escalated trade tensions. Market participants saw this as a response to fees charged by the US. Additionally, President Donald Trump said on Tuesday that Washington is considering terminating some trade ties with Beijing, including for cooking oil.
Technical Analysis: USD/INR delivers consolidation breakdown
The Indian Rupee gains sharply to near 88.10 against the US Dollar in the opening trade on Wednesday. The USD/INR pair faces a sharp selling pressure after a breakdown of the three-week-long consolidation formed in a range between 88.75 and 89.10.
The near-term trend of the pair has become uncertain as tests below the 20-day Exponential Moving Average (EMA), which is around 88.69.
The 14-day Relative Strength Index (RSI) falls below 50.00, suggesting a shift in momentum on the downside in the near term.
Looking down, the September 17 low of 87.70 will act as key support for the pair. On the upside, the current all-time high of 89.12 will be a key barrier.
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.
Source: https://www.fxstreet.com/news/usd-inr-tumbles-at-open-on-possible-rbis-intervention-202510150455
