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- The Indian rupee rose amid weakness in the US dollar in the early Asian session on Monday.
- Indian bonds were included in the JP Morgan Emerging Markets Debt Index, boosting foreign inflows into India and the Indian rupee.
- India’s HSBC Manufacturing PMI and US ISM Manufacturing reports will be in the spotlight on Monday.
The Indian rupee (INR) strengthened on Monday as the US dollar (USD) weakened. Foreign inflows from India’s inclusion in JPMorgan’s emerging market debt index are expected to send billions of dollars into the world’s fifth-largest economy, boosting the rupee. Moreover, the weaker US personal consumption expenditure (PCE) price index for May, which hit its lowest annual rate in more than three years, weighed on the US dollar and acted as a headwind for the pair.
Meanwhile, gains in crude oil prices could put some selling pressure on the pair, as India is the world’s third-largest oil consumer after the US and China. On Monday, investors will focus on the HSBC India Manufacturing PMI, which is expected to improve to 58.5 from 57.5. Any signs of weakness in India could put some selling pressure on the Indian rupee. On the US calendar, the ISM Manufacturing Index for June will be released.
Daily Market Movers Summary: Indian Rupee Remains Strong Amid Strong Macroeconomic Fundamentals
- Foreign exchange market indicators were pointing to inflows, likely due to passive funds buying bonds, but several market players said the inflows were lower than expected. Traders estimated inflows of up to $2 billion over Thursday and Friday.
- India’s two benchmark equity indices, Sensex and Nifty 50, ended the first half of the current calendar year on a positive note. The Nifty 50 index rose 10.5%, while the Sensex gained 9.4% in the first six months of 2024, hitting record highs of 24,174 and 79,671.58, respectively.
- The US PCE price index rose 2.6% year over year in May, compared to 2.7% in April. This figure was in line with market expectations. Core PCE inflation rose 2.6% year-on-year in May from 2.8% in April, in line with estimates.
- San Francisco Federal Reserve Bank President Mary Daly said Friday that monetary policy is working, but it is too early to say when it would be appropriate to cut interest rates. “If inflation remains flat or declines slowly, interest rate hikes will be needed for a longer period,” Daly added.
- The US ISM Purchasing Managers’ Index (PMI) is expected to improve to 49.0 in June from 48.7 in May.
Technical Analysis: USD/INR could face some selling or consolidation in the near term
The Indian Rupee is trading with moderate gains on the day. The bullish outlook for the USD/INR pair remains intact on the daily time frame, as the pair holds above the key 100-day exponential moving average (EMA). However, the USD/INR pair could resume its downward journey if the pair breaks below the 100-day EMA. Additionally, the 14-day RSI is holding below the 50 midline, suggesting that further downside or consolidation cannot be ruled out.
Extended gains above 83.65, the stock’s June 26 high, would take the stock to an all-time high of 83.75. Any sustained buying above that level would pave the way for the psychological level of 84.00.
On the other hand, the main support level for the pair is located at the 83.30-83.35 area, which is the 100-day moving average. An additional bearish level will reveal the round figure of 83.00.
The price of the US dollar today
The table below shows the percentage change of the US Dollar (USD) against the major currencies listed today. The US dollar was weakest against the euro.
| American dollar | euro | GBP | scoundrel | Australian dollar | JPY | New Zealand Dollar | Swiss Franc | |
| American dollar | -0.15% | -0.10% | -0.01% | 0.04% | -0.01% | -0.04% | -0.13% | |
| euro | 0.14% | 0.05% | 0.13% | 0.20% | 0.16% | 0.12% | 0.02% | |
| GBP | 0.09% | -0.07% | 0.08% | 0.14% | 0.10% | 0.06% | -0.04% | |
| scoundrel | 0.01% | -0.16% | -0.09% | 0.06% | 0.03% | -0.01% | -0.12% | |
| Australian dollar | -0.04% | -0.20% | -0.14% | -0.06% | -0.04% | -0.08% | -0.18% | |
| JPY | 0.00% | -0.16% | -0.10% | 0.01% | 0.06% | -0.02% | -0.15% | |
| New Zealand Dollar | 0.04% | -0.12% | -0.06% | 0.01% | 0.08% | 0.04% | -0.09% | |
| Swiss Franc | 0.13% | -0.02% | 0.04% | 0.12% | 0.18% | 0.14% | 0.10% |
The heat map shows the percentage changes in major currencies against each other. The base currency is selected from the left column, while the counter currency is selected from the top row. For example, if you select the Euro from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will be EUR (base)/JPY (quote).
Frequently asked questions about the Indian Rupee
The Indian Rupee (INR) is one of the most sensitive currencies to external factors. The price of crude oil (the country is heavily dependent on imported oil), the value of the US dollar – most trade is conducted in US dollars – and the level of foreign investment are all influential factors. Direct intervention by the Reserve Bank of India (RBI) in the foreign exchange markets to maintain stability in the exchange rate, as well as the level of interest rates set by the RBI, are other major factors affecting the rupee.
The Reserve Bank of India actively intervenes in the foreign exchange markets to maintain a stable exchange rate, helping to facilitate trade. In addition, the RBI tries to keep inflation at its 4% target by adjusting interest rates. Higher interest rates usually strengthen the rupee. This is due to the role of the “carry trade” where investors borrow in countries with low interest rates to put their money in countries with relatively higher interest rates and profit from the difference.
Macroeconomic factors that affect the value of the rupee include inflation, interest rates, economic growth rate, trade balance, and inflows of foreign investment. A higher growth rate can lead to more foreign investments, leading to increased demand for the rupee. A less negative trade balance will eventually lead to a stronger rupee. Higher interest rates, especially real rates (interest rates below inflation) are also positive for the rupee. The risk environment could lead to greater inflows of FDI and indirect FDI (FDI and FII), which also benefits the rupee.
A higher inflation rate, especially if it is relatively higher than in India, is generally negative for a currency because it reflects a depreciation of the currency through increased supply. Inflation also makes exports more expensive, which leads to more rupees being sold to buy foreign imports, which is negative for the rupee. At the same time, higher inflation usually leads to the Reserve Bank of India (RBI) raising interest rates, which can be positive for the rupee, due to increased demand from international investors. The opposite effect is true for lower inflation.
