- Indian Rupee rebounds on the softer US Dollar on Thursday.
- The renewed USD sales and potential FX intervention from the RBI support the INR.
- Any development surrounding the changes to India’s structural reforms might weigh on the INR.
- The US weekly Initial Jobless Claims and Balance of Trade are due later on Thursday.
Indian Rupee (INR) recovers on Thursday amid the weaker US Dollar (USD). On Wednesday, the INR closed stronger on the back of USD sales from foreign banks and likely intervention from the Reserve Bank of India (RBI). Furthermore, Investors started to price in two interest rate cuts by the Federal Reserve (Fed) this year, which weigh on the Greenback and create a headwind for the pair.
The US weekly Initial Jobless Claims and Balance of Trade are due on Thursday. Investors will closely monitor the RBI’s interest rate decision on Friday, with no change in rate expected. Also, the US Nonfarm Payrolls data will be in the spotlight. The stronger-than-expected data could boost the Greenback and cap the downside for USD/INR. Meanwhile, India faces multiple headwinds from the political shifts and downbeat PMI data. If there are changes to India’s structural reforms, this could exert some selling pressure on the Indian Rupee.
Daily Digest Market Movers: Indian Rupee rebounds amid likely RBI intervention
- Overseas investors withdrew $678 million from Indian equities on Wednesday alone, totaling $1.5 billion in two days. According to NSDL, investors sold $1,466.3 million worth of Indian shares on Tuesday, while buying $103.3 million in Indian bonds.
- Benchmark Indian equity indices, the BSE Sensex and Nifty 50 gained on Wednesday, closing the session higher by about 3% each after logging their steepest fall in four years in the previous session.
- The HSBC India Services PMI dropped to 60.4 in May from the final 60.8 in the previous month. This was the 34th consecutive month of expansion in services activity although it registered the lowest mark since December 2023.
- “The election results are likely to keep both the rupee and bond yields volatile in the short run,” HDFC bank economist Sakshi Gupta said.
- Bharatiya Janata Party (BJP) has won 240 seats in the Lok Sabha elections, which was followed by the Indian National Congress winning 99 seats, and the Samajwadi Party winning 37 seats, according to the Election Commission of India’s (ECI) website.
- The US ISM Services PMI improved to 53.8 in May from 49.4 in April. This figure came in stronger than the estimation of 50.8.
- Traders are now pricing in a nearly 70% chance of a Fed rate cut in September, up from 54.9% at the beginning of the week, according to the CME FedWatch tool.
Technical analysis: USD/INR keeps the bullish vibe above the 100-day EMA
The Indian Rupee trades on a stronger note on the day. The positive outlook of the USD/INR pair remains intact as it broke above the descending trend channel that has been established since mid-April and holds above the key 100-day Exponential Moving Average (EMA) on the daily chart. Nonetheless, the 14-day Relative Strength Index (RSI) hovers around the 50-midline, denoting a neutral level and suggesting that further consolidation looks favorable for the time being.
The resistance-turned-support level and the 100-day EMA at the 83.30-83.35 region act as an initial support level for the pair. A decisive break below this level would attract some sellers to the 83.00 psychological level, followed by a low of January 15 at 82.78.
On the other hand, the first upside barrier will emerge near a high of June 4 at 83.62. Further north, the next hurdle is seen near a high of April 17 at 83.72 en route to the 84.00 round mark.
US Dollar price this week
The table below shows the percentage change of US Dollar (USD) against listed major currencies this week. US Dollar was the weakest against the Swiss Franc.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | -0.31% | -0.39% | 0.43% | -0.10% | -0.85% | -0.75% | -1.16% | |
| EUR | 0.31% | -0.06% | 0.73% | 0.20% | -0.53% | -0.45% | -0.84% | |
| GBP | 0.39% | 0.09% | 0.82% | 0.28% | -0.44% | -0.35% | -0.75% | |
| CAD | -0.43% | -0.74% | -0.80% | -0.55% | -1.26% | -1.18% | -1.58% | |
| AUD | 0.10% | -0.19% | -0.28% | 0.53% | -0.72% | -0.63% | -1.02% | |
| JPY | 0.84% | 0.53% | 0.44% | 1.23% | 0.68% | 0.08% | -0.32% | |
| NZD | 0.74% | 0.44% | 0.35% | 1.16% | 0.64% | -0.08% | -0.42% | |
| CHF | 1.14% | 0.83% | 0.75% | 1.56% | 1.01% | 0.32% | 0.40% |
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).
RBI FAQs
The role of the Reserve Bank of India (RBI), in its own words, is ‘..to maintain price stability while keeping in mind the objective of growth.” This involves maintaining the inflation rate at a stable 4% level primarily using the tool of interest rates. The RBI also maintains the exchange rate at a level that will not cause excess volatility and problems for exporters and importers, since India’s economy is heavily reliant on foreign trade, especially Oil.
The RBI formally meets at six bi-monthly meetings a year to discuss its monetary policy and, if necessary, adjust interest rates. When inflation is too high (above its 4% target), the RBI will normally raise interest rates to deter borrowing and spending, which can support the Rupee (INR). If inflation falls too far below target, the RBI might cut rates to encourage more lending, which can be negative for INR.
Due to the importance of trade to the economy, the Reserve Bank of India (RBI) actively intervenes in FX markets to maintain the exchange rate within a limited range. It does this to ensure Indian importers and exporters are not exposed to unnecessary currency risk during periods of FX volatility. The RBI buys and sells Rupees in the spot market at key levels, and uses derivatives to hedge its positions.
