USD/INR recovers on firmer US Dollar, hawkish Fed stance

Indian Rupee (INR) is losing its recovery momentum on Wednesday amid US Dollar (USD) demand from importers and bets that US Federal Reserve (Fed) rate cuts are not imminent. Nonetheless, the positive cues from local equities and the optimistic outlook in the Indian economy might boost the INR and limit the pair's upside in the near term. India's business activity continued to strengthen in April and expanded at its fastest pace in nearly 14 years, owing to strong demand, according to a survey released on Tuesday. The report suggested India is well positioned to be the fastest-growing major economy this year after impressive growth in recent quarters.

The US March Durable Goods Orders are due on Wednesday. Later this week, market participants will keep an eye on the US preliminary Gross Domestic Product (GDP) Annualized for the first quarter, which is estimated to grow 2.5% in Q1. On Friday, the final reading of the US March Personal Consumption Expenditures Price Index (PCE) will be in the spotlight. 

Daily Digest Market Movers: Indian Rupee remains weak despite the optimistic economic outlook

• India's HSBC Manufacturing Purchasing Managers Index (PMI) came in at 59.1 in April, compared to 59.1 in March. The Services PMI figure rose to 61.7 from the previous reading of 61.2. 
• "Strong performance in both the manufacturing and service sectors, led by increased new orders, resulted in the highest composite output index since June 2010," said HSBC chief India economist, Pranjul Bhandari.
• The US flash S&P Global Composite PMI fell to 50.9 in April from the previous reading of 52.1, indicating US business activity continued to expand in April, albeit at a softer pace than in March.
• The US S&P Global Manufacturing PMI dropped to 49.9 in April from 51.9 in the previous reading, weaker than the estimation of 52.0. The Services PMI decreased to 50.9, compared to 51.7 prior, worse than the 52.0 expected.
• US New Home Sales rose 8.8% MoM to a seasonally adjusted annual rate of 693,000 units in March, the highest level since September 2023.

Technical analysis: USD/INR's longer-term bullish trend remains intact 

The Indian Rupee trades weaker on the day. The bullish vibe of USD/INR remains unchanged on the daily chart as the pair remains above the key 100-day Exponential Moving Average (EMA). However, the 14-day Relative Strength Index (RSI) holds below the 50.00 midline, indicating further consolidation or downside cannot be ruled out before positioning for any near-term USD/INR appreciation.

Looking at the bright side, the immediate resistance level for the pair is seen at 83.50 (high of April 15). Further north, the next upside target will emerge at 83.72 (an all-time high), en route to 84.00 (round figure). On the flip side, the initial contention level for USD/INR is located in the 83.10-83.15 region, portraying the confluence of the 100-day EMA and a low of April 10. Any follow-through selling will pave the way to 82.78 (low of January 15), followed by 82.65 (low of March 16).  

US Dollar price today

The table below shows the percentage change of US Dollar (USD) against listed major currencies today. US Dollar was the strongest against the Japanese Yen.

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 Euro from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent EUR (base)/JPY (quote).

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.

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