- The Indian rupee was trading lower in the early hours of the European market on Monday.
- A combination of lower crude oil prices, robust foreign capital inflows and strengthening Fed interest rate expectations is likely to limit INR depreciation.
- Investors are awaiting the release of India's trade balance and the US New York Empire State manufacturing index on Monday.
The Indian Rupee (INR) weakened on Monday despite a weakening US Dollar (USD). Falling crude oil prices, a surge in Foreign Institutional Investor (FII) inflows into the Indian equity market and a possible sharp interest rate cut by the Federal Reserve (Fed) at its monetary policy meeting scheduled for Wednesday are likely to support the Indian currency.
However, consistent dollar buying by importers and risk aversion ahead of important events could see the US dollar strengthen. Looking ahead, India's trade balance and US New York Empire State manufacturing index are due for release on Monday. India's Wholesale Price Index (WPI) inflation and US retail sales for August are due for release on Tuesday. The focus on Wednesday will be on the US Federal Reserve's interest rate decision.
Daily Digest Market Trends: Indian rupee remains weak amid multiple headwinds
- On Friday, the BSE Sensex closed down 72 points or 0.1 per cent, while the NSE Nifty slumped 32 points or 0.1 per cent. Bajaj Finserv, Axis Bank and Wipro were among the top gainers.
- “In the last three months, the US Dollar Index has fallen from 106 to around 101. At the same time, Asian currencies have strengthened against the US Dollar. A possible rate cut by the US Federal Reserve, sharp fall in crude oil prices and continued inflow of foreign institutional investors into the Indian equity market are supportive factors for the rupee. However, the local currency has not strengthened and rather remains weak against the US Dollar,” said Amit Pabari, MD, CR Forex Advisors.
- Reserve Bank of India Governor Shaktikanta Das said the country's projected growth rate for the next few years is 7.5 percent, with the potential to rise.
- The University of Michigan Consumer Sentiment Index rose to 69.0 in September from 67.9 in August, beating the forecast of 68.0.
- According to the CME FedWatch tool, the market is currently pricing in a 48% chance of a 25 basis points (bps) rate cut in the U.S. on September 17-18, with a 52% chance of a 50 bps cut.
Technical analysis: Constrained outlook for USD/INR remains
The Indian Rupee has declined marginally on the day. The USD/INR pair has fallen below the ascending triangle on the daily chart. However, in the long term, bullish sentiment persists as the pair remains above the crucial 100-day Exponential Moving Average (EMA). Further consolidation cannot be ruled out as the 14-day Relative Strength Index (RSI) is hovering near the midline, indicating that the pair’s momentum is neutral.
If the upward pressure above the 84.00-84.05 area sustains and a confluence of the psychological indicator, the upper limit of the triangle and the September 11 high occurs, USD/INR may rise to the next upside barrier at 84.50.
Meanwhile, the first support level is at 83.84, which was the low of August 30. A break below this level could pave the way to the 100-day EMA at 83.68.
RBI Frequently Asked Questions
The role of the Reserve Bank of India (RBI), in its own words, is “to maintain price stability, keeping in mind the objective of growth.” This involves keeping inflation at a stable 4% level, primarily through interest rates. And since the Indian economy is heavily dependent on foreign trade, especially oil, the RBI keeps the exchange rate at a level that does not cause undue fluctuations and problems for exporters and importers.
The RBI meets formally six times a year, every two months, to discuss monetary policy and adjust interest rates as needed. If inflation is too high (above the target of 4%), the RBI will usually raise interest rates to curb borrowing and spending, leading to an appreciation of the rupee (INR). If inflation is significantly below the target, the RBI may lower interest rates to increase lending, which could be negative for the INR.
The Reserve Bank of India (RBI) actively intervenes in the foreign exchange market to keep the exchange rate within a certain range due to the importance of trade to the economy. This is to ensure that Indian importers and exporters are not exposed to unnecessary currency risk during periods of high foreign exchange volatility. The RBI buys and sells the rupee at key levels in the spot market and hedges its positions using derivatives.
