- The Indian rupee came under selling pressure in early European markets on Wednesday.
- Weakness in Asian currencies and weakening demand for US Dollar at the end of the month will weigh on the INR.
- Investors are waiting to hear from Fed Governors Waller and Bostic on Wednesday for fresh impetus.
The Indian Rupee (INR) extended its decline on Wednesday due to weakness in Asian currencies and sluggish demand for the US Dollar (USD) from importers. However, strength in the domestic market and dovish comments from Federal Reserve Chairman Jerome Powell at last week's Jackson Hole meeting may help cushion the INR's decline.
Fed officials Christopher Waller and Raphael Bostic are scheduled to speak later on Wednesday. The annualized U.S. gross domestic product (GDP) for the second quarter (Q2) is due to be released on Thursday and is expected to grow 2.8%. Attention on Friday will be on the U.S. personal consumption expenditures (PCE) price index and India's quarterly GDP for the first quarter (Q1) of fiscal year 2024-25 (FY25).
Daily Digest Market Trends: Indian rupee weakens despite Fed's dovish stance
- The International Monetary Fund (IMF) has projected that India's real GDP growth will reach 7% in 2024, remaining the world's fastest growing major economy.
- India's economic growth in the April-June quarter is expected to expand at the slowest pace in a year due to lower government spending, according to a Reuters poll.
- The Conference Board's U.S. Consumer Sentiment Index rose to 103.3 in August from an upwardly revised 101.9 in July, the highest level in six months.
- The Federal Housing Finance Agency said on Tuesday that the U.S. home price index fell 0.1% in June from the previous month, beating expectations of a 0.2% increase.
- Futures are currently pricing in a nearly 34.5% chance of a half-percentage point cut in rates, according to the CME FedWatch tool.
Technical analysis: Positive outlook for USD/INR remains valid
The Indian Rupee has traded lower on the day. Technically, the pair remains constructive as the price remains above the crucial 100-day Exponential Moving Average (EMA) on the daily timeframe. The 14-day Relative Strength Index (RSI) remains above its mid-line around 58.00, indicating that the support level is likely to hold without a drop.
The first upside barrier to watch for USD/INR is the support-turned-resistance at the psychological level of 84.00.Continued buying above this level could pave the way for the next hurdle near the record high of 84.24 on the way to 84.50.
On the bear side, the August 20 low of 83.77 will act as an initial support level for the pair. Any extended losses could expose the 100-day EMA at 83.60.
US Dollar Price for the Last 7 Days
The table below shows the percentage change of the US Dollar (USD) and major listed currencies over the past 7 days: The US Dollar was the strongest against the Euro.
| USD | EUR | GBP | CAD | Australian Dollar | JPY | NZD | Swiss Franc | |
| USD | -0.16% | -1.47% | -1.15% | -0.56% | -0.64% | -1.24% | -1.16% | |
| EUR | 0.15% | -1.33% | -0.99% | -0.40% | -0.47% | -1.08% | -1.00% | |
| GBP | 1.45% | 1.29% | 0.32% | 0.89% | 0.86% | 0.23% | 0.30% | |
| CAD | 1.13% | 0.98% | -0.32% | 0.57% | 0.51% | -0.08% | 0.01% | |
| Australian Dollar | 0.55% | 0.40% | -0.89% | -0.57% | -0.08% | -0.67% | -0.60% | |
| JPY | 0.63% | 0.43% | -0.83% | -0.54% | 0.07% | -0.66% | -9957.03% | |
| NZD | 1.22% | 1.06% | -0.24% | 0.09% | 0.66% | 0.59% | 0.07% | |
| Swiss Franc | 1.15% | 0.97% | -0.30% | 0.01% | 0.59% | 0.52% | -0.07% |
The heat map displays the percentage change between major currencies. The base currency is selected from the left column and the quote currency is selected from the top row. For example, if you select Euro from the left column and move it along the horizontal line to Japanese Yen, the percentage change displayed in the box will represent EUR (base)/JPY (quote).
Frequently asked questions about Indian Rupee
The Indian Rupee (INR) is one of the most sensitive currencies to external factors. Oil prices (India is heavily dependent on imported crude oil), the value of the US Dollar (most trade is conducted in US Dollars) and the level of foreign investment are all influential. The Reserve Bank of India's (RBI) direct intervention in the FX market to stabilize the exchange rate, and the interest rate levels set by the RBI are also major factors affecting the rupee.
The Reserve Bank of India (RBI) actively intervenes in the foreign exchange market to maintain a stable exchange rate and encourage trade. In addition, the RBI tries to keep inflation at a target of 4% by adjusting interest rates. When interest rates rise, the rupee usually appreciates. This is due to the role of the “carry trade” where investors borrow in countries with low interest rates and park the funds in countries with relatively high interest rates, profiting from the difference.
Macroeconomic factors that affect the value of the rupee include inflation, interest rates, economic growth (GDP), trade balance, and foreign investment inflows. Higher growth rates lead to more foreign investment, which in turn increases the demand for the rupee. A lower trade deficit ultimately strengthens the rupee. An increase in interest rates, especially real interest rates (interest rates minus inflation), is also positive for the rupee. A risk-on environment leads to higher foreign direct investment (FDI) and foreign indirect investment (FII) inflows, which also benefits the rupee.
Rising inflation, especially when it is high in India relative to the rest of the world, is generally negative for the currency as it reflects a fall in the value of the currency due to excess supply. Inflation also increases export costs, leading to more rupees being sold to buy foreign imports, which is negative for the rupee. At the same time, rising inflation typically leads to interest rate hikes by the Reserve Bank of India (RBI), which can be positive for the rupee due to increased demand from international investors. Low inflation has the opposite effect.
