The Indian Rupee Weakens Amidst Trade Uncertainty
- Issue: Trump’s tariff threats undermine INR
- Factors: Significant inflows and RBI intervention might cap downside
- Focus: US Core PCE inflation data
The Indian Rupee (INR) continues to weaken in Wednesday’s Asian session as uncertainty looms over international trade relations. The potential imposition of high tariffs by Donald Trump on imports into the US has bolstered the US Dollar (USD) and put pressure on the local currency. Furthermore, the cautious approach taken by the Federal Reserve (Fed) could further support the USD in the short term.
Despite these challenges, the influx of foreign investments due to the rejig of MSCI’s global equity indexes may help mitigate the INR’s losses. Additionally, the Reserve Bank of India (RBI) might intervene in the foreign exchange market to prevent excessive depreciation of the INR. The upcoming US Core Personal Consumption Expenditures (Core PCE) – Price Index for October will be closely monitored, along with other key economic indicators.
Impact of MSCI Index Rebalancing on Indian Rupee
- Positive Influence: Boosted Indian stock market, attracting over $1 billion in net foreign purchases
- Market Outlook: HSBC Global Research notes upward trend in major sectors of the Indian economy
- Trade Policies: Trump’s tariff threats create uncertainty in global trade dynamics
- Fed’s Stance: FOMC minutes suggest cautious approach to interest rate cuts
- Market Sentiment: FedWatch Tool indicates reduced probability of rate cut
Technical Analysis of USD/INR Pair
The Indian Rupee faces continued weakness against the US Dollar. The USD/INR pair maintains a bullish trajectory within an ascending trend channel on the daily chart, with key support at the 100-day Exponential Moving Average (EMA). This upward momentum is supported by the 14-day Relative Strength Index, indicating further potential for appreciation.
Key resistance lies in the 84.50-84.55 zone, representing historical highs and the upper boundary of the trend channel. A sustained break above this level could propel the pair towards the psychological barrier of 85.00. On the downside, initial support rests at the lower trend channel boundary of 84.24, followed by the 100-day EMA at 83.94 and the August 1 low of 83.65.
Understanding Indian Rupee FAQs
- Factors Affecting INR: Crude oil prices, USD value, foreign investment, RBI interventions, and interest rates
- RBI’s Role: Intervenes in FX markets to stabilize exchange rates and manage inflation through interest rate adjustments
- Macroeconomic Influences: Inflation, interest rates, GDP growth, trade balance, and foreign investment impact INR value
- Inflation Impact: Higher inflation can devalue currency but also attract international investors through increased interest rates
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