USD/INR struggles to extend upside even as USD Index outperforms
- The Indian Rupee has been consolidating around 89.00 against the US Dollar for almost two weeks.
- FIIs turned out to be buyers in the Indian stock market on Tuesday.
- US President Trump warns of eliminating welfare programs and job cuts amid the government shutdown.
The Indian Rupee (INR) opens on a flat note again around 88.90 against the US Dollar (USD) on Wednesday. The USD/INR pair has been trading in a confined range of 20 paise for almost two weeks between 88.79 and the all-time high of 89.12, with investors seeking fresh cues on when India and the United States (US) will reach a trade agreement.
A report from Reuters has stated that the Reserve Bank of India (RBI) has been intervening regularly in the non-deliverable forward market and the local spot market through state-run banks to support the Indian Rupee against the US Dollar.
The Indian currency has been under immense pressure as the US is charging 50% tariffs on imports from India. Washington raised duties on imports from New Delhi by 25% for buying Oil from Russia.
This weekend, External Affairs Minister Subrahmanyam Jaishankar said in a speech that both nations are struggling to reach a consensus as major economic issues with the US are yet to be resolved. However, he didn’t clarify those issues and signaled a likely timeframe in which both nations will announce a trade pact.
Ongoing trade tensions between the US and India have remained a major drag on the sentiment of overseas investors towards the Indian stock market. In the July-September period, Foreign Institutional Investors (FIIs) have sold equity shares worth Rs. 1,29,870.96 crores in the Indian stock market. However, FIIs turned out to be buyers on Tuesday and bought shares worth Rs. 1,440.66 crores.
Domestically, the RBI on Tuesday proposed changes to the way banks assign risk weightage to loans and the so-called expected credit loss (ECL) framework, Reuters reported. The RBI stated that the changes proposed, which aim to align domestic regulations with global norms, will have a positive impact on banks’ minimum regulatory capital requirements.
The table below shows the percentage change of Indian Rupee (INR) against listed major currencies today. Indian Rupee was the strongest against the Japanese Yen.
| USD | EUR | GBP | JPY | CAD | AUD | INR | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.45% | 0.24% | 0.69% | 0.07% | 0.35% | 0.06% | 0.37% | |
| EUR | -0.45% | -0.20% | 0.27% | -0.36% | -0.11% | -0.34% | -0.09% | |
| GBP | -0.24% | 0.20% | 0.49% | -0.13% | 0.14% | -0.17% | 0.13% | |
| JPY | -0.69% | -0.27% | -0.49% | -0.66% | -0.35% | -0.61% | -0.38% | |
| CAD | -0.07% | 0.36% | 0.13% | 0.66% | 0.27% | 0.01% | 0.28% | |
| AUD | -0.35% | 0.11% | -0.14% | 0.35% | -0.27% | -0.23% | 0.04% | |
| INR | -0.06% | 0.34% | 0.17% | 0.61% | -0.01% | 0.23% | 0.18% | |
| CHF | -0.37% | 0.09% | -0.13% | 0.38% | -0.28% | -0.04% | -0.18% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick 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).
US Dollar Index trades firmly despite US government shutdown
- The Indian Rupee continues to hold its all-time low against the US Dollar at around 89.10, even as the latter strengthens amid the US government shutdown. At the press time, the US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, trades 0.35% higher to near 99.00, the highest level seen in two months.
- The US Dollar gains as its safe-haven demand has increased, with investors remaining cautious that the closure of federal agencies could lead to significant cuts in spending programs and mass lay-offs.
- On Tuesday, US President Donald Trump announced that the White House could eliminate a string of government plans amid ongoing government closure and would provide details on laying off employees in the next four or five days, Reuters reported. Such a scenario would be unfavourable for the US economic growth and allow Federal Reserve (Fed) officials to turn dovish on the monetary policy outlook.
- Currently, traders see an 82% chance that the Fed will cut interest rates by 25 basis points (bps) in each of its two policy meetings remaining this year, according to the CME FedWatch tool.
- For fresh cues on the monetary policy outlook, investors await Federal Open Market Committee (FOMC) minutes of the September meeting, which will be published at 18:00 GMT. Last month, the Fed delivered its first interest rate cut of the current financial year and reduced policy rates by 25 bps to 4.00%-4.25%. The Fed stated that the monetary policy adjustment became appropriate amid cracks in the job market, with the impact of tariffs on inflation remaining limited.
Technical Analysis: USD/INR stays above 20-day EMA
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USD/INR stays in a tight range near the all-time high of 89.10 for almost two weeks. The near-term trend of the pair remains bullish as the 20-day Exponential Moving Average (EMA) slopes higher around 88.62.
The 14-day Relative Strength Index (RSI) stays above 60.00, suggesting a strong bullish momentum.
Looking down, the pair could slide to near the September 12 high of 88.57 and the 20-day EMA, if it breaks below the September 25 low of 88.76.
On the upside, the pair could extend a rally towards the round figure of 90.00 if it breaks above the current all-time high of 89.12.
Indian economy FAQs
The Indian economy has averaged a growth rate of 6.13% between 2006 and 2023, which makes it one of the fastest growing in the world. India’s high growth has attracted a lot of foreign investment. This includes Foreign Direct Investment (FDI) into physical projects and Foreign Indirect Investment (FII) by foreign funds into Indian financial markets. The greater the level of investment, the higher the demand for the Rupee (INR). Fluctuations in Dollar-demand from Indian importers also impact INR.
India has to import a great deal of its Oil and gasoline so the price of Oil can have a direct impact on the Rupee. Oil is mostly traded in US Dollars (USD) on international markets so if the price of Oil rises, aggregate demand for USD increases and Indian importers have to sell more Rupees to meet that demand, which is depreciative for the Rupee.
Inflation has a complex effect on the Rupee. Ultimately it indicates an increase in money supply which reduces the Rupee’s overall value. Yet if it rises above the Reserve Bank of India’s (RBI) 4% target, the RBI will raise interest rates to bring it down by reducing credit. Higher interest rates, especially real rates (the difference between interest rates and inflation) strengthen the Rupee. They make India a more profitable place for international investors to park their money. A fall in inflation can be supportive of the Rupee. At the same time lower interest rates can have a depreciatory effect on the Rupee.
India has run a trade deficit for most of its recent history, indicating its imports outweigh its exports. Since the majority of international trade takes place in US Dollars, there are times – due to seasonal demand or order glut – where the high volume of imports leads to significant US Dollar- demand. During these periods the Rupee can weaken as it is heavily sold to meet the demand for Dollars. When markets experience increased volatility, the demand for US Dollars can also shoot up with a similarly negative effect on the Rupee.