The Indian Rupee (INR) maintains last week’s gains against the US Dollar (USD) at the beginning of the week. USD/INR is holding on to losses near 90.00, driven by the Reserve Bank of India’s (RBI) intervention in the spot market and non-deliverable futures (NDF) market to support the Indian rupee.
Last week, the Reserve Bank of India sold the US dollar in the opening trading on Wednesday and in the closing trading hours on Friday to protect the Indian rupee from a one-way depreciation against the US dollar. The Indian currency has fallen by about 6.5%, so far this year, against the US dollar.
The main driver behind the strength of the USD/INR pair this year is the strong demand for the US dollar by Indian importers and the constant inflow of foreign funds from the Indian stock market amid trade frictions between the US and India.
In the cash market, foreign institutional investors (FIIs) remained net sellers in seven out of 11 months this year. So far this month, FIIs have also offloaded their quota worth Rs. Rs 19,857.37 crore. However, some buying was seen among foreign investors in the last three trading days. FIIs remained net buyers in only the last three trading days of this month, buying a stake worth Rs. 3,598.38 crores.
The table below shows the percentage change of the Indian Rupee (INR) against the major currencies listed in the last 7 days. The Indian rupee was the strongest against the Japanese yen.
| US dollars | euro | GBP | JPY | Canadian | Australian dollar | Indian rupee | Swiss franc | |
|---|---|---|---|---|---|---|---|---|
| US dollars | 0.09% | -0.25% | 1.02% | 0.08% | 0.15% | -1.06% | -0.16% | |
| euro | -0.09% | -0.34% | 0.92% | -0.02% | 0.08% | -0.96% | -0.25% | |
| GBP | 0.25% | 0.34% | 1.37% | 0.33% | 0.41% | -0.64% | 0.08% | |
| JPY | -1.02% | -0.92% | -1.37% | -0.93% | -0.85% | -1.73% | -0.95% | |
| Canadian | -0.08% | 0.02% | -0.33% | 0.93% | 0.07% | -0.79% | -0.09% | |
| Australian dollar | -0.15% | -0.08% | -0.41% | 0.85% | -0.07% | -0.87% | -0.33% | |
| Indian rupee | 1.06% | 0.96% | 0.64% | 1.73% | 0.79% | 0.87% | 0.72% | |
| Swiss franc | 0.16% | 0.25% | -0.08% | 0.95% | 0.09% | 0.33% | -0.72% |
The heat map shows the percentage changes in major currencies versus each other. The base currency is chosen from the left column, while the counter currency is chosen from the top row. For example, if you select the Indian Rupee from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent INR (base)/USD (quote).
Daily summary of market drivers: Investors await third-quarter US GDP data
- The US dollar is struggling to regain strength against the Indian rupee after hitting a new three-week low near 89.50 on Friday, even as the Indian rupee traded broadly flat against its major peers amid expectations that the Federal Reserve will not cut interest rates in its January policy meeting.
- At the time of writing, the US Dollar Index (DXY), which tracks the value of the dollar against six major currencies, is trading slightly lower around 98.60.
- According to the CME FedWatch tool, the probability that the Fed will cut interest rates by 25 basis points to 3.25%-3.50% at the January meeting is 22.5%.
- The Fed’s dovish outlook for the January meeting did not accelerate despite November US CPI data showing that inflationary pressure has eased.
- Data released on Thursday showed that headline inflation fell to 2.7% year-on-year from 3% in October. In the same period, the core CPI – which excludes volatile food and energy – fell to 2.6% from the previous estimate of 3%.
- Over the weekend, Cleveland Fed President Beth Hammack said in an interview with The Wall Street Journal (WSJ) that there is no need to change interest rates until at least the spring, while emphasizing the need for evidence to support progress in inflation toward 2%. She added that the significance of the November inflation reading was limited because the data was distorted due to the government shutdown.
- “My base case is that we can stay here for a while, until we get clearer evidence that inflation is getting back to target or the employment side is weakening further,” Hammack said.
- Going forward, the main catalyst for the US dollar will be preliminary third-quarter GDP data, which will be published on Tuesday.
Technical Analysis: USD/INR faces pressure near 20-day EMA
The USD/INR pair is trading cautiously near the 90.0440 level at the beginning of the week. The 20-day EMA is rising, although the price is slightly lower below it at 90.1601, easing the near-term upside after a strong rally. The uptrend line from 83.9122 supports the broader bias, with support aligned near 89.1107.
The 14-day Relative Strength Index (RSI) at 51 (neutral) confirms that momentum has slowed from recent overbought readings.
Upside momentum may improve on a sustained close above the 20-day EMA which may pressure the price to revisit the all-time high near 91.50. Looking down, a break below the uptrend line could open the door to a deeper pullback towards the November low at 88.49.
(The technical analysis for this story was written with the help of an artificial intelligence tool.)
Frequently asked questions about Indian economy
The Indian economy has averaged a growth rate of 6.13% between 2006 and 2023, making it one of the fastest growing economies in the world. India’s high growth has attracted a lot of foreign investment. This includes foreign direct investment (FDI) in physical projects and foreign indirect investment (FII) by foreign funds in Indian financial markets. The higher the investment level, the greater the demand for the rupee (INR). Fluctuations in dollar demand from Indian importers also affect the Indian rupee.
India has to import a significant amount of its oil and gasoline needs, so the oil price can have a direct impact on the rupee. Oil is mostly traded in US dollars (USD) in international markets, so if the price of oil rises, the overall demand for USD increases and Indian importers have to sell more rupees to meet this demand, which leads to a depreciation of the rupee.
Inflation has a complex impact on the rupee. It ultimately indicates an increase in money supply which reduces the overall value of the rupee. However, if the interest rate rises above the RBI’s target level of 4%, the bank will raise interest rates to bring it down by reducing credit. Rising interest rates, especially real rates (the difference between interest rates and inflation) boost the rupee. It makes India a more profitable place for international investors to put their money. Lower inflation could be supportive for the rupee. Meanwhile, low interest rates could have a negative impact on the rupee.
India has run a trade deficit for most of its modern history, suggesting that its imports exceed its exports. Since the majority of international trade is conducted in US dollars, there are times – due to seasonal demand or abundant demand – when a high volume of imports creates a large demand for US dollars. During these periods the rupee can weaken as it is sold heavily to meet the demand for dollars. When markets witness increased volatility, demand for the US dollar can also rise with a corresponding negative impact on the rupee.
