- Indian Rupee weakens in Thursday’s early European session.
- The increased liquidity flowing into the Indian market and dovish Fed drag the US Dollar down.
- Traders await the US weekly Initial Jobless Claims, the Philly Fed Manufacturing Index and Existing Home Sales on Thursday.
The Indian Rupee (INR) loses ground amid the recovery of the US Dollar (USD) on Thursday. The downside of the INR might be limited after the US Federal Reserve (Fed) made a large rate cut at its September meeting, which might weaken the US Dollar (USD). Furthermore, the persistent Foreign Institutional Investor (FII) funds into Indian equities could further strengthen the local currency.
Nonetheless, further rebound in crude oil prices could undermine the INR as India is the third-largest oil consumer after the United States (US) and China. Moving on, investors await the US weekly Initial Jobless Claims, the Philly Fed Manufacturing Index and Existing Home Sales, which are due later on Thursday.
Daily Digest Market Movers: Indian Rupee edges lower, but potential downside seems limited
- The Reserve Bank of India (RBI) is unlikely to ease the benchmark policy rate during 2024 given the uncertainty over food inflation, said State Bank of India (SBI) chairman C S Setty.
- Finance Minister Nirmala Sitharaman said on Wednesday that India is standing out globally in terms of economic growth and will continue to do so in the next few years.
- The Federal Open Market Committee (FOMC) decided to lower the federal funds rate by 50 basis points (bps) to a range of 4.75% to 5.00%, the Fed’s first rate cut in more than four years.
- Fed Chair Jerome Powell noted during a press conference that the half-point rate reduction did not represent any new pattern for the central bank but that policymakers want to keep the economy and the labor market in good shape.
- Fed policymakers revised their quarterly economic forecasts, raising the median projection for unemployment by the end of 2024 to 4.4% from the 4% projection in June. Fed officials raised their projection for the long-run federal funds rate to 2.9% from 2.8%.
Technical Analysis: USD/INR’s positive stance remains fragile in the longer term
The Indian Rupee trades softer on the day. The USD/INR pair has broken below the rectangle on the daily chart. The bullish outlook of the pair seems vulnerable as the price hovers the key 100-day Exponential Moving Average (EMA). If the pair closes below the 100-day EMA, it could resume the downside. Meanwhile, the 14-day Relative Strength Index (RSI) stands in the bearish zone below the midline near 38.0, suggesting the path of least resistance is to the downside.
The 100-day EMA at 83.64 acts as an initial support level for the pair. A breach of this level could see a drop to 83.31, the low of June 18. Extended losses could attract some sellers to the 83.00 psychological mark.
On the upside, the first upside barrier for USD/INR emerges at the support-turned-resistance level near 83.75. A crucial barrier is seen at the 83.90-84.00 region.
RBI FAQs
The role of the Reserve Bank of India (RBI), in its own words, is ‘..to maintain price stability while keeping in mind the objective of growth.” This involves maintaining the inflation rate at a stable 4% level primarily using the tool of interest rates. The RBI also maintains the exchange rate at a level that will not cause excess volatility and problems for exporters and importers, since India’s economy is heavily reliant on foreign trade, especially Oil.
The RBI formally meets at six bi-monthly meetings a year to discuss its monetary policy and, if necessary, adjust interest rates. When inflation is too high (above its 4% target), the RBI will normally raise interest rates to deter borrowing and spending, which can support the Rupee (INR). If inflation falls too far below target, the RBI might cut rates to encourage more lending, which can be negative for INR.
Due to the importance of trade to the economy, the Reserve Bank of India (RBI) actively intervenes in FX markets to maintain the exchange rate within a limited range. It does this to ensure Indian importers and exporters are not exposed to unnecessary currency risk during periods of FX volatility. The RBI buys and sells Rupees in the spot market at key levels, and uses derivatives to hedge its positions.
