The US dollar has had a rough time against the Indian rupee in the last three weeks. The shift, which comes after the rupee was close to all-time lows, isn’t because of a sudden boom in the Indian economy; its because of a mix of global and domestic factors.
First, the rupee’s recent rise isn’t simply a stroke of luck. It was the worst-performing currency in Ais until mid-October, when it fell by 3.7% against the dollar. This weakening was caused by a perfect storm. The key factors at play included high US tariffs on Indian exports, a slowdown in foreign investments and uncertainty over US-India trade negotiations.
Every day that went by without a deal in those talks added more pressure. For the rupee, the weakness was exacerbated by the stress on trade and foreign portfolio flows. As Goldman Sachs put it, the rupee was “caught in a torrential monsoon,” and it’s not hard to see why. Furthermore, higher visa costs were hurting India’s tech sector.
But then, things changed. The rupee came back strong in just three days last week, mostly because the Reserve Bank of India (RBI) stepped in aggressively. The RBI crushed the bears on the rupee and caused a short squeeze. That made traders who were betting against the INR to quickly cover their positions. Bloomberg has recently pointed out that this central bank strength , along with a falling global dollar index, pushed the rupee to the highest level in a month.
Why Is the Rupee Rising Against the Dollar?
A key observation in play is that the US Dollar Index (DXY) is generally getting weaker. We’re in a time where markets are really anticipating that the US Federal Reserve is going to cut interest rates sooner rather than later.
The narrative, combined with the RBI’s dollar selling strategy has tilted the scales in favour of the rupee. With increased dollar liquidity in the Indian economy, USD/INR is likely to continue feeling the pressure.
What Will Influence USD/INR Today?
The USD/INR trajectory for today depends on a mix of scheduled economic releases and how investors react to them. The key highlights of US economic data today will be Initial Jobless Claims for the week ending October 16th and the September Home Sales data. If the data shows that the US economy is doing better than predicted, it could lower expectations for rate cuts. In turn, that could cause a short, but significant rise in the value of the dollar. On the other hand, soft data will support the dovish Fed story and hurt the USD.
Meanwhile, crude oil prices are always a problem for India, which gets 80% of its oil externally. The commodity is primarily paid in dollars. So, if prices suddenly go up, Indian oil importers will want more dollars, which will put pressure on the rupee.
Investors will also be on the lookout to see if President Donald Trump’s push to have India cut its Russian imports will bear fruit. Furthermore, eyes will be on India-US trade negotiations, which are reportedly nearing conclusion. All these factors will influence the trajectory of the USD/INR pair.
Technical Analysis
The USD/INR pair has gone up a bit to about 87.84 as of this writing. The RSI (14) at 41.52 shows that the market is near oversold and may be about to turn around. Meanwhile, a -0.099 reading on the MACD (12,26) is a sign that the sellers are still in control.
The pivot’s holding at 88.05 and the first support at 87.55, but a slip could drag it to 87.00. Resistance is tough at 88.39 and 88.87 and breaking those could spark some bullish action.
See also
USDINR daily chart with RSI and MACD indicators. Source: TradingView
Why is the USD/INR pair showing a weak momentum?
The momentum is weak because markets are pricing in potential Fed rate cuts, which lowers the dollars global appeal. Also, the Indian central bank, the RBI, has been selling the US dollar, adding liquidity in the Indian economy and strengthening the rupee.
Besides the Fed and RBI moves, what else could influence USD/INR trajectory?
The key factors that could impact USDINR include the outcome of US-India trade negotiations and the possibility of India cutting its Russian oil imports.
What do technical indicators tell us about USDINR?
The RSI at 39 and the MACD at -0.051 show that the sellers are still in control, supporting the possibility of further decline.
