The Indian Rupee is currently experiencing a boost against the weaker US dollar, with inflows into India potentially lifting the INR. However, the overall strength in major Asian currencies and rising oil prices pose a challenge to further upside movement. Additionally, traders are closely watching key economic indicators such as the US Chicago Fed National Activity Index, Consumer Confidence, and speeches from Fed officials.
According to S&P Global Ratings, India’s growth forecast for the fiscal year 2025 is set at 6.8%, driven by high interest rates and increased government spending. The Indian Economic Advisory Council predicts that India will become a $4 trillion economy by 2025, surpassing Japan to become the world’s fourth-largest economy. This positive outlook is bolstered by San Francisco Fed President Mary Daly’s emphasis on the importance of restoring price stability without causing disruptions to the economy.
The US is expected to see a rise in both the headline and Core Personal Consumption Expenditures Price Index for May, indicating a 2.6% increase on a yearly basis. The financial markets have also priced in a 66% probability of a Fed rate cut in September, showcasing a growing expectation for monetary policy changes.
The USD/INR pair is holding a bullish stance on the daily chart, supported by the 100-day Exponential Moving Average. However, the Relative Strength Index suggests a potential consolidation in the near future. A move towards the 83.75 level could trigger further gains up to 84.00 and beyond. On the downside, support levels are identified at 83.30-83.35 and 83.00.
The Indian Rupee is highly sensitive to external factors such as the price of crude oil, the value of the US dollar, and foreign investment levels. The Reserve Bank of India plays a crucial role in maintaining exchange rate stability through intervention in forex markets and adjustments in interest rates. Macroeconomic factors like inflation, interest rates, GDP growth, trade balance, and foreign investment inflows all contribute to the overall value of the Rupee.
A higher growth rate in India can attract more overseas investment, boosting demand for the Rupee. A balanced trade situation and higher interest rates also contribute positively to the currency’s strength. On the other hand, higher inflation rates have a negative impact on the Rupee, leading to devaluation and increased costs of exports. The Reserve Bank of India’s response to inflation by raising interest rates can, however, benefit the Rupee by attracting international investors.
The Indian Rupee’s trajectory is influenced by a combination of global economic trends, market sentiment, and domestic policy decisions. As one of the most sensitive currencies to external factors, the Rupee’s value is subject to fluctuations based on a variety of macroeconomic variables. Understanding these dynamics is essential for investors and policymakers looking to navigate the complexities of the foreign exchange market.