- The Indian Rupee trades in negative territory in Thursday’s early European session.
- Month-end US Dollar demand drags the INR lower, but a surge in foreign fund inflows might cap its downside.
- Investors brace for US weekly Initial Jobless Claims and final Q4 GDP report, which are due later on Thursday.
The Indian Rupee (INR) loses momentum on Thursday. Concerns over potential tariff retaliations and rising month-end US Dollar (USD) demand from importers undermine the Indian currency. Furthermore, a rise in crude oil prices contributes to the INR’s downside as India is the world’s third-largest oil consumer.
Nonetheless, the positive outlook in domestic equities and renewed foreign fund inflows might lift the local currency. Any significant depreciation of the INR might be capped by the foreign exchange intervention from the Reserve Bank of India (RBI). Looking ahead, the US weekly Initial Jobless Claims, the final Gross Domestic Product (GDP) for the fourth quarter (Q4), and Pending Home Sales will be published later on Thursday.
Indian Rupee remains weak amid global cues
- Foreign investors have bought more than $2 billion worth of Indian shares in the last four days, while month-to-date inflows into bonds stood at over $3 billion.
- Late Wednesday, Trump signed an order to implement a 25% tariff on auto imports. Trump added that the tariffs would go into effect on April 2 and the US would start to collect them a day later.
- Trump will allow up to a one-month reprieve for auto parts imports from his proposed 25% automobile tariffs, per Reuters.
- US Durable Goods Orders rose by 0.9% in February, compared to a 3.3% increase (revised from 3.1%) reported in January, according to the US Census Bureau on Wednesday. This figure came in better than the market expectation for a decrease of 1%.
USD/INR’s bearish outlook remains in play
The Indian Rupee weakens on the day. The bearish outlook of the USD/INR pair remains intact as the price remains capped below the key 100-day Exponential Moving Average on the daily timeframe. The downward momentum is reinforced by the 14-day Relative Strength Index (RSI), which stands below the midline near 36.0, suggesting the path of least resistance is to the downside.
The initial support level for USD/INR is seen at 85.56, the low of March 26. Sustained bearish pressure below the mentioned level could see a drop to 84.84, the low of December 19, followed by 84.22, the low of November 25, 2024.
On the bright side, the key resistance level for the pair emerges in the 85.95-86.00 zone, representing the 100-day EMA and the psychological level. Further north, the next hurdle to watch is 86.48, the low of February 21, en route to 87.00, the round figure.
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.
