The Indian Rupee has been weakening in Wednesday’s Asian session, largely due to persistent USD demand from importers and trade deficits. The currency remains the worst-performing Asian currency in August. However, any significant weakening of the Rupee might be limited by possible intervention from the Reserve Bank of India (RBI) to prevent breaching the critical 84.00 mark. Furthermore, the lower crude oil prices in the market could limit the losses for the local currency in the near term. Traders will be watching out for the release of advanced August Purchasing Managers Index (PMI) data from India and the US on Thursday, as well as the speech by Federal Reserve Chair Jerome Powell at Jackson Hole on Friday.
According to MUFG Bank analysts, Asian currencies have been strengthening against the US dollar due to broad USD weakness and a risk-on sentiment in the market. Foreign investors have pulled around $2.5 billion from Indian shares in August as per stock depository data. Economic indicators show a decline in India’s exports by 6% in the current fiscal year through July compared to the previous year, and a drop of 3.5% in foreign direct investment in India in FY24. Federal Reserve Governor Michelle Bowman mentioned caution in approaching policy stance changes, highlighting the need to avoid overreacting to single data points. Markets are currently pricing in a 67.5% chance of the Fed cutting interest rates by 25 basis points in September.
In terms of technical analysis, the USD/INR pair remains positive in the longer term, with the price staying above the key 100-day Exponential Moving Average on the daily chart. However, there has been some selling pressure below the 11-week-old uptrend line and the bearish 14-day Relative Strength Index (RSI) indicates the possibility of further downside. The next key upside barrier for USD/INR is expected near the 83.90-84.00 zone, with a possible rally to the record high of 84.24. On the downside, the initial target could be 83.70, followed by the 100-day EMA at 83.55 and 83.36.
The last 7 days have seen the US Dollar as the weakest against the Australian Dollar, showing a percentage change against listed major currencies. The heat map demonstrates the percentage changes of major currencies against each other, with the base currency picked from the left column and the quote currency from the top row. Meanwhile, the Indian Rupee remains sensitive to external factors, including the price of crude oil, the value of the US Dollar, foreign investment levels, and the intervention of the Reserve Bank of India in FX markets.
The RBI actively intervenes in forex markets to maintain a stable exchange rate and adjusts interest rates to maintain inflation at its 4% target. Macroeconomic factors such as inflation, interest rates, GDP growth rate, balance of trade, and foreign investment inflows also impact the value of the Rupee. Higher growth rates and less negative trade balances lead to a stronger Rupee, while higher inflation can be negative unless it leads to an increase in interest rates. Overall, the Indian Rupee’s value is influenced by a combination of global and domestic economic factors.
