The Indian Rupee has been under pressure in Wednesday’s early Asian session, driven by the weakening of Asian peers and increased demand for the US Dollar. However, positive sentiments in domestic markets and dovish comments from Federal Reserve Chair Jerome Powell at the Jackson Hole meeting may provide some support to the local currency.
Investors are closely watching the scheduled speeches by the Fed’s Christopher Waller and Raphael Bostic on Wednesday. Additionally, the release of the US Gross Domestic Product Annualized for the second quarter and the Indian GDP Quarterly for the first quarter of fiscal year 2024-25 will be key events to monitor later in the week.
The International Monetary Fund (IMF) has projected that India’s real GDP growth is expected to reach 7% in 2024, positioning it as the fastest-growing major economy in the world. However, a Reuters poll suggests that India’s economic growth in the April-June quarter may have slowed down due to lower government spending.
The US Consumer Confidence Index showed a positive trend in August, reaching a six-month high. Conversely, the US House Price Index dropped slightly in June. Market expectations are also factoring in a possibility of a half-percentage point cut in interest rates by the Federal Reserve.
Despite the weakening of the Indian Rupee, the technical outlook for the USD/INR pair remains constructive. The price is currently above the key 100-day Exponential Moving Average (EMA), and the 14-day Relative Strength Index (RSI) indicates a potential support level near 58.00. The psychological barrier at 84.00 is a key resistance level to watch for in the pair.
The Indian Rupee is highly sensitive to external factors such as the price of Crude Oil, the value of the US Dollar (as most trade is conducted in USD), and the level of foreign investment. The Reserve Bank of India (RBI) plays an active role in intervention to stabilize the exchange rate and adjust interest rates to manage inflation. Higher interest rates typically strengthen the Rupee, attracting foreign investors through the ‘carry trade.’
Various macroeconomic factors, including inflation, interest rates, GDP growth rate, balance of trade, and foreign investment inflows, impact the value of the Rupee. Higher economic growth rates and a positive trade balance can lead to a stronger Rupee. Additionally, a risk-on environment with increased foreign investment inflows benefits the Rupee. However, higher inflation, particularly compared to India’s peers, and lower real interest rates can negatively affect the currency.
The Indian Rupee’s exchange rate fluctuations are influenced by a complex interplay of domestic and global factors. Understanding these dynamics is essential for investors, policymakers, and businesses operating in the Indian financial markets.