Market Data 
- The Indian Rupee weakens in Monday’s early European session.
- Ongoing outflows from Indian stocks and the threat of a global trade war undermine the INR.
- Lower crude oil prices and RBI intervention might help limit INR’s losses.
The Indian Rupee (INR) trades with negative bias on Monday. The local currency remains on the defensive amid persistent outflows from local stocks, ongoing economic uncertainty and trade tariff concerns. Foreign investors have withdrawn almost $15 billion from Indian shares so far this year, putting outflows on track to surpass the record $17 billion registered in 2022. The selloff has wiped out $1.3 trillion from India’s market value.
However, a fall in crude oil prices might help limit the INR’s losses as India is the world’s third-largest oil consumer. Additionally, the Reserve Bank of India (RBI) is expected to continue defending the INR, with the government expressing confidence that the central bank’s intervention would stagger the pace of the slide. This, in turn, might cap the upside for the pair. In the absence of the top-tier economic data releases from the US and India on Monday, the USD/INR pair will be influenced by the USD.
Indian Rupee remains weak on global uncertainty and persistent outflows
- RBI said last week that it will infuse $21 billion in Rupee liquidity into the banking system in a bid to ease lending conditions and boost economic growth.
- The US Nonfarm Payrolls (NFP) rose by 151K in February, compared to the 125K increase (revised from 143K) seen in January, according to the US Bureau of Labor Statistics (BLS) on Friday. This figure came in weaker than the market expectation of 160K.
- The Unemployment Rate in the US edged higher to 4.1% in February from 4.0% in January. The annual wage inflation, as measured by the change in the Average Hourly Earnings, climbed to 4.0% from 3.9% (revised from 4.1%).
- San Francisco Fed President Mary Daly said late Sunday that rising uncertainty among businesses could dampen demand in the US economy but does not justify a change in interest rates.
- Fed Chair Jerome Powell noted on Friday, warning that policy uncertainty makes it difficult for the US central bank to enact policy adjustments.
- Fed Governor Adriana Kugler stated that whiplash trade policies could do a lot of damage, including pinning inflation at a persistently higher level.
USD/INR paints a positive picture despite consolidation in the near term
The Indian Rupee trades in a negative territory on the day. The constructive outlook of the USD/INR pair remains in place, characterized by the price holding above the key 100-day Exponential Moving Average (EMA) on the daily timeframe. The upward momentum is supported by the 14-day Relative Strength Index (RSI), which stands above the midline near 55.0, showing signs of bullish demand.
The immediate resistance level for USD/INR emerges at 87.53, the high of February 28. A decisive break above this level could draw in buying pressure to an all-time high near 88.00, en route to 88.50.
On the other hand, the first downside target to watch is 86.48, the low of February 21. Extended downswings can drag the pair lower to 86.14, the low of January 27, followed by 85.60, the low of January 6.
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.
