USD/INR loses ground ahead of US NFP data
- The Indian Rupee edges higher in Friday’s early Asian session.
- The firmer USD, a rise in crude oil prices and foreign outflows pressured the INR.
- Investors will closely monitor the US December NFP data.
The Indian Rupee (INR) recovers some lost ground on Friday after reaching a record low in the previous session. The stronger US Dollar (USD) and higher crude oil prices continue to weigh on the local currency. This, along with relentless selling in domestic equities and outflow of foreign capital, might keep the INR under pressure in the near term.
Nonetheless, the RBI could intervene in the foreign exchange market to prevent the INR from depreciating to its historic low level. Later on Friday, traders will keep an eye on the Indian Industrial Output and Manufacturing Output for November. On the US docket, the labor market data for December will be closely watched, including the Nonfarm Payrolls (NFP), Unemployment Rate and Average Hourly Earnings.
Indian Rupee rebounds from record low amid uncertainties
- Foreign investors have removed around $2 billion dollars from India’s stock market since the start of the year.
- India’s economy is estimated to grow by 6.6% in 2025, according to the United Nations World Economic Situation and Prospects (WESP) report on Thursday.
- Federal Reserve Bank of Boston President Susan Collins said on Thursday that significant uncertainty over the outlook calls for the Fed to move forward cautiously with future rate reductions.
- Philadelphia Fed President Patrick Harker still expects rate cuts, but any sort of imminent move down is not needed amid considerable uncertainty over the economic outlook, per Reuters.
- Kansas City Fed President Jeff Schmid stated he favors slowing the pace of interest-rate cuts, though only after a persistent change in incoming economic data.
- Fed Governor Michelle Bowman said on Thursday that said she sees the interest rates on hold for the time being until the data shows inflation has resumed its downward trend.
USD/INR’s bullish outlook remains in play, but overbought conditions could limit any advance
The Indian Rupee trades on a firmer note on the day. The path of least resistance is to the upside as the USD/INR pair is well-supported above the key 100-day Exponential Moving Average (EMA) on the daily timeframe.
However, the 14-day Relative Strength Index (RSI) moves beyond the 70.00 mark, indicating the overbought condition. This suggests that further consolidation cannot be ruled out before positioning for any near-term USD/INR appreciation.
The first immediate resistance level for USD/INR is located at the 85.95-86.00 region, representing the all-time high and the psychological mark. Sustained bullish momentum past the mentioned level could even lift the pair to the next upside target at 86.50.
On the downside, the initial support level to watch for the pair emerges at 85.65, the low of January 7. If bears are taking the upper hand, this could be followed by a drop to 84.51, the 100-day EMA.
Indian Rupee FAQs
The Indian Rupee (INR) is one of the most sensitive currencies to external factors. The price of Crude Oil (the country is highly dependent on imported Oil), the value of the US Dollar – most trade is conducted in USD – and the level of foreign investment, are all influential. Direct intervention by the Reserve Bank of India (RBI) in FX markets to keep the exchange rate stable, as well as the level of interest rates set by the RBI, are further major influencing factors on the Rupee.
The Reserve Bank of India (RBI) actively intervenes in forex markets to maintain a stable exchange rate, to help facilitate trade. In addition, the RBI tries to maintain the inflation rate at its 4% target by adjusting interest rates. Higher interest rates usually strengthen the Rupee. This is due to the role of the ‘carry trade’ in which investors borrow in countries with lower interest rates so as to place their money in countries’ offering relatively higher interest rates and profit from the difference.
Macroeconomic factors that influence the value of the Rupee include inflation, interest rates, the economic growth rate (GDP), the balance of trade, and inflows from foreign investment. A higher growth rate can lead to more overseas investment, pushing up demand for the Rupee. A less negative balance of trade will eventually lead to a stronger Rupee. Higher interest rates, especially real rates (interest rates less inflation) are also positive for the Rupee. A risk-on environment can lead to greater inflows of Foreign Direct and Indirect Investment (FDI and FII), which also benefit the Rupee.
Higher inflation, particularly, if it is comparatively higher than India’s peers, is generally negative for the currency as it reflects devaluation through oversupply. Inflation also increases the cost of exports, leading to more Rupees being sold to purchase foreign imports, which is Rupee-negative. At the same time, higher inflation usually leads to the Reserve Bank of India (RBI) raising interest rates and this can be positive for the Rupee, due to increased demand from international investors. The opposite effect is true of lower inflation.