- The Indian rupee held firm on Thursday.
- Initial HSBC India PMI figures for May were mixed.
- Investors will be closely monitoring preliminary US PMI figures for May, due to be released on Thursday.
The Indian Rupee (INR) recovered some lost ground on Thursday following mixed Indian Purchasing Managers’ Index (PMI) release. The HSBC Manufacturing PMI for May fell to 58.4 from 58.5 in April, while the Services PMI for May improved to 61.4 from the previous 60.8. Additionally, possible currency intervention by the Reserve Bank of India (RBI) may limit INR depreciation in the near term.
However, the FOMC minutes and a more hawkish stance from Federal Reserve policymakers could boost the US Dollar, providing a tailwind for the USD. Foreign outflows ahead of India’s upcoming election results could also weigh on the INR. Market participants will be keeping an eye on the flash US S&P Global PMI figures on Thursday. If the report shows stronger than expected numbers, it could delay the timing of the rate cut cycle, supporting the US Dollar (USD).
Daily Digest Market movements: Indian rupee gains momentum despite Fed’s hawkish stance
- Food prices remain high in India and inflation is likely to remain high, according to the Reserve Bank of India’s (RBI) latest State of the Economy report.
- Foreign investors sold more than $3 billion worth of Indian stocks in May, the biggest monthly outflow since January 2023.
- The FOMC on Wednesday released the minutes of its April 30-May 1 policy meeting, which indicated that inflation in recent months had not made further progress toward the Fed’s 2 percent target.”
- Fed policymakers are likely to keep interest rates on hold until at least September after higher-than-expected inflation in the first three months of the year undermined confidence in falling price pressures.
- Financial markets continue to adjust expectations for rate cuts this year, with the probability of the first cut coming in September now approaching 60%, according to the CME FedWatch tool.
Technical analysis: USD/INR positive outlook looks fragile on daily chart
The Indian Rupee traded higher on the day. The USD/INR pair has been forming a head and shoulders pattern since March 21. The bullish outlook for the pair looks fragile as it continues to trade close to the key 100-day Exponential Moving Average (EMA) and the neckline on the daily chart. A cross below this level would resume the downtrend, with the 14-day Relative Strength Index (RSI) remaining below the 50 midline.
The 83.20-83.25 area acts as a key support level for USD/INR and marks the confluence of the 100-day EMA and the neckline. A break above this level would result in a drop to the psychological mark of 83.00 followed by the January 15 low of 82.78.
On the bright side, the first upside target will appear at the right shoulder of the Head and Shoulders pattern at 83.54 (May 13th high). A bullish breakout above the aforementioned levels would eventually override the chart pattern and rally to the April 17 high of 83.72 on its way to 84.00.
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 seven days: The US Dollar was strongest against the Swiss Franc.
| USD | EUR | GBP | CAD | Australian Dollar | JPY | new zealand dollar | Swiss franc | |
| USD | 0.57% | -0.28% | 0.60% | 1.13% | 1.50% | 0.27% | 1.57% | |
| EUR | -0.58% | -0.84% | 0.03% | 0.58% | 0.94% | -0.31% | 1.00% | |
| GBP | 0.28% | 0.84% | 0.88% | 1.42% | 1.77% | 0.54% | 1.83% | |
| CAD | -0.61% | -0.03% | -0.89% | 0.55% | 0.91% | -0.34% | 0.95% | |
| Australian Dollar | -1.16% | -0.58% | -1.44% | -0.56% | 0.36% | -0.90% | 0.42% | |
| JPY | -1.51% | -0.93% | -1.79% | -0.92% | -0.32% | -1.27% | 0.04% | |
| NZD | -0.25% | 0.31% | -0.54% | 0.34% | 0.90% | 1.24% | 1.30% | |
| Swiss franc | -1.60% | -1.01% | -1.87% | -0.97% | -0.42% | -0.05% | -1.32% |
The heat map shows the percentage change between major currencies. The base currency is selected from the left column and the quote currency is selected from the row above. For example, if you select Euro from the left column and move 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 Rupees
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 promote trade. In addition, the RBI tries to keep inflation at a target of 4% by adjusting interest rates. Normally, when interest rates rise, the rupee rises. 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, making a profit from the difference.
Macroeconomic factors that influence the value of the rupee include inflation, interest rates, economic growth rate (GDP), trade balance, inflows from foreign investments, etc. Higher growth rate may lead to higher foreign investments, which will boost the demand for the rupee. Reduction in the negative trade balance will ultimately lead to a stronger rupee. Higher interest rates, especially real interest rates (interest rates minus inflation), will also be positive for the rupee. A risk-on environment may lead to higher foreign direct and indirect investment (FDI and FII) inflows, which will also benefit the rupee.
Rising inflation rates, especially when high relative to other countries in India, are generally negative for a currency as it reflects a fall in the value of the currency due to oversupply. Inflation also increases export costs and more rupees are sold to buy foreign imports, which is negative for the rupee. At the same time, rising inflation usually leads to an increase in interest rates 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.
