- USD/INR could test all-time high of 83.7190.
- The Indian Rupee may limit its fall as traders await possible RBI intervention.
- The US dollar continues to gain ground due to rising risk aversion.
USD/INR continues to appreciate, trading around 83.60 during the early European session on Friday. The Indian Rupee (INR) has avoided testing a record low at 83.7190 against the US Dollar (USD), likely due to the anticipated intervention by the Reserve Bank of India (RBI), according to market participants.
The rise in the USD/INR pair can be attributed to the strengthening of the US Dollar amid rising risk aversion. The Dollar is also bolstered as US Treasury yields continue to improve. However, the upside potential of the USD could be limited by weak jobs data, which increases market expectations of a Federal Reserve (Fed) rate cut in September.
U.S. Initial Claims for Jobless Benefits rose more than expected, data showed on Thursday, adding 243K new claimants for unemployment benefits for the week ended July 12, compared with the 230K expected, and exceeding the previous week’s revised 223K.
On the INR front, traders are likely to be awaiting the release of India’s Foreign Exchange Reserves (USD) data for the week ended July 8, scheduled for release on Friday. Also, the focus is on the Union Budget 2024-25, which is set to be tabled in parliament next week.
Earlier this week, the International Monetary Fund (IMF) revised its economic forecast for India, now projecting a 7% growth rate for this year, down from 6.8% forecast in April. This adjustment is attributed to higher consumer spending in rural areas.
Indian Rupee FAQs
The Indian Rupee (INR) is one of the most sensitive currencies to external factors. The price of crude oil (the country relies heavily on imported oil), the value of the US Dollar (most trade is done in US Dollars) and the level of foreign investment are all influential factors. Direct intervention by the Reserve Bank of India (RBI) in the foreign exchange markets to keep the exchange rate stable, as well as the level of interest rates set by the RBI, are other important factors that influence the Rupee.
The Reserve Bank of India (RBI) actively intervenes in the foreign exchange markets to maintain a stable exchange rate and help facilitate trade. In addition, the RBI attempts to keep the inflation rate at its target of 4% by adjusting interest rates. Higher interest rates typically strengthen the Rupee. This is due to the role of the “carry trade,” where investors borrow from countries with lower interest rates 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, economic growth rate (GDP), trade balance, and foreign investment inflows. A higher growth rate can lead to higher overseas investment, increasing demand for the Rupee. A less negative trade balance will eventually lead to a stronger Rupee. Higher interest rates, especially real rates (interest rates minus inflation) are also positive for the Rupee. A risk-off environment can lead to higher foreign direct and indirect investment (FDI and FII) inflows, which also benefit the Rupee.
Higher inflation, particularly if it is comparatively higher than other countries, is generally negative for the currency as it reflects a devaluation through excess supply. Inflation also increases the cost of exports, leading to more rupees being sold to buy foreign imports, which is negative for the Indian Rupee. At the same time, higher inflation usually leads the Reserve Bank of India (RBI) to raise interest rates and this can be positive for the Rupee, due to increased demand from international investors. The opposite effect applies to lower inflation.
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
