The Indian Rupee (INR) is under pressure in Wednesday’s early Asian session due to weakening in Asian peers and month-end USD demand. The local currency is also impacted by US Dollar (USD) demand from importers. Despite these challenges, positive domestic markets and Federal Reserve (Fed) Chair Jerome Powell’s dovish comments at the recent Jackson Hole meeting may provide some support to the Rupee. The key events to watch for include the speeches by the Fed’s Christopher Waller and Raphael Bostic, the release of the US GDP data for Q2, and the Indian GDP data for Q1 of fiscal year 2024-25.
The International Monetary Fund (IMF) has projected that India’s real GDP growth will reach 7% in 2024, maintaining its position as the fastest-growing major economy globally. However, a Reuters poll suggests that India’s economic growth in the April-June quarter may have slowed down due to lower government spending. On the other hand, the US Consumer Confidence Index rose in August, while the US House Price Index showed a slight decline in June.
From a technical standpoint, the USD/INR pair remains in a constructive position with the price above the key 100-day Exponential Moving Average (EMA) on the daily timeframe. The 14-day Relative Strength Index (RSI) is also indicating potential support levels. The immediate upside barrier for the pair is at the 84.00 psychological level, with further resistance levels at 84.24 and 84.50. On the downside, initial support is seen at 83.77, followed by the 100-day EMA at 83.60.
The value of the Indian Rupee is strongly influenced by external factors such as the price of crude oil (as India heavily relies on imported oil), the value of the US Dollar (since most trade is conducted in USD), and foreign investment levels. Additionally, direct intervention by the Reserve Bank of India (RBI) in FX markets plays a crucial role in stabilizing the exchange rate. The RBI also adjusts interest rates to maintain inflation at its 4% target, with higher rates generally strengthening the Rupee.
Macroeconomic factors like inflation, interest rates, GDP growth rate, balance of trade, and foreign investment inflows also impact the Rupee’s value. A higher growth rate attracts more overseas investment and boosts demand for the Rupee. A positive balance of trade and higher real interest rates are also beneficial for the currency. In a risk-on environment, increased FDI and FII inflows can further support the Rupee. However, higher inflation, especially in comparison to India’s peers, can weigh down the Rupee by reducing its purchasing power and increasing the cost of imports.
The Indian Rupee’s value is influenced by a complex interplay of domestic and global factors. While short-term fluctuations may be driven by market sentiments and economic data releases, the long-term stability and strength of the Rupee depend on sound macroeconomic policies and external conditions. Investors and traders need to closely monitor these factors to make informed decisions regarding the Indian Rupee.