USD/INR loses its recovery momentum, all eyes on Fed rate decision

  • Indian Rupee gains ground despite the firmer US Dollar ahead of a key US event.
  • The Federal Reserve is widely expected to keep the benchmark overnight rate steady in the 5.25%–5.50% range.
  • Investors await the FOMC interest rate decision and press conference ahead of the Indian Interim Budget 2024. 

Indian Rupee (INR) trades on a stronger note on Wednesday. However, the upside of the pair might be capped as traders prefer to wait on the sidelines ahead of the Federal Reserve’s Open Market Committee’s (FOMC) interest rate decision.

India has attracted attention with its standout growth trajectory. Indian Chief Economic Adviser, V Anantha Nageswaran, stated that India can aspire to become a $7 trillion economy by 2030. However, the risk of sticky inflation and higher oil prices amid the Middle East geopolitical tension might impact the Indian economy.  

The Federal Reserve is widely anticipated to leave benchmark interest rates unchanged at a 23-year high of 5.25–5.5% at its January meeting. The prospects that the first Fed rate cut will happen at the March meeting have faded as the economy continues to show surprising strength. According to the CME FedWatch Tool, the markets have priced in 85% odds of a rate cut at the May meeting. 

Later on Wednesday, FOMC is set to announce its rate decision at 19.00 GMT and Chairman Jerome Powell will hold a press conference at 19.30 GMT. Powell’s speech could provide information on the central bank’s outlook and offer some hints about the timeline of rate cuts in 2024. Apart from this, India’s S&P Global Manufacturing PMI for January will be due on Thursday. All eyes will be on the Indian Interim Budget 2024 for fiscal year 2024–25. 

  • The International Monetary Fund (IMF) has raised its 2024-25 India’s GDP growth forecast to 6.5% compared with the 6.3% projected earlier.
  • India’s foreign exchange reserves dropped $2.79 billion to $616.14 billion for the week ending on January 19, according to the Reserve Bank of India (RBI). 
  • India’s finance minister will present the federal budget for 2024–25 on Thursday, with expectations that the government will lower its fiscal deficit by at least 50 basis points (bps).
  • The Indian Rupee became the best-performing currency in Asian markets in January 2024, rising by 1% to 2%.
  • The National Statistical Office (NSO) forecasted an Indian growth rate of 7.3% for FY24, compared to 7.2% for FY23. 
  • The number of job openings in the US rose to 9.026 million in December, above the November figure, which was revised up to 8.925 million.
  • The Conference Board Consumer Confidence surged to a two-year high in January, arriving at 114.8 in January versus 108.0 prior.

Indian Rupee trades firmer on the day. The USD/INR pair consolidates within a two-month-old descending trend channel of 82.78–83.45. USD/INR remains well-supported above the key 100-period Exponential Moving Average (EMA) on the daily chart. However, the bullish outlook of the pair looks vulnerable as the 14-day Relative Strength Index (RSI) hovers around the 50.0 midlines, suggesting the non-directional movement of the pair.

The first resistance level for the pair will emerge at the upper boundary of the descending trend channel at 83.25. A sustained break above the 83.25 level could pave the way to the next bullish targets all the way up to a high of January 2 at 83.35, en route to a 2023 high of 83.47. On the other hand, a bearish breakout below the confluence of the 100-period EMA and a psychological level at the 83.00–83.05 region would signal the bearish momentum back to a low of December 18 at 82.90, followed by the lower limit of the descending trend channel at 82.72.

US Dollar price in the last 7 days

The table below shows the percentage change of US Dollar (USD) against listed major currencies in the last 7 days. US Dollar was the strongest against the Euro.

USD   0.36% 0.12% -0.29% 0.30% -0.32% -0.16% -0.77%
EUR -0.36%   -0.24% -0.66% -0.10% -0.67% -0.55% -1.13%
GBP -0.12% 0.24%   -0.41% 0.15% -0.43% -0.30% -0.89%
CAD 0.29% 0.68% 0.41%   0.56% -0.02% 0.12% -0.47%
AUD -0.27% 0.10% -0.15% -0.56%   -0.54% -0.46% -1.04%
JPY 0.31% 0.67% 0.45% 0.01% 0.61%   0.11% -0.46%
NZD 0.18% 0.51% 0.27% -0.13% 0.45% -0.13%   -0.61%
CHF 0.77% 1.12% 0.88% 0.48% 1.05% 0.46% 0.60%  

The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Euro from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent EUR (base)/JPY (quote).

Indian economy FAQs

The Indian economy has averaged a growth rate of 6.13% between 2006 and 2023, which makes it one of the fastest growing in the world. India’s high growth has attracted a lot of foreign investment. This includes Foreign Direct Investment (FDI) into physical projects and Foreign Indirect Investment (FII) by foreign funds into Indian financial markets. The greater the level of investment, the higher the demand for the Rupee (INR). Fluctuations in Dollar-demand from Indian importers also impact INR.

India has to import a great deal of its Oil and gasoline so the price of Oil can have a direct impact on the Rupee. Oil is mostly traded in US Dollars (USD) on international markets so if the price of Oil rises, aggregate demand for USD increases and Indian importers have to sell more Rupees to meet that demand, which is depreciative for the Rupee.

Inflation has a complex effect on the Rupee. Ultimately it indicates an increase in money supply which reduces the Rupee’s overall value. Yet if it rises above the Reserve Bank of India’s (RBI) 4% target, the RBI will raise interest rates to bring it down by reducing credit. Higher interest rates, especially real rates (the difference between interest rates and inflation) strengthen the Rupee. They make India a more profitable place for international investors to park their money. A fall in inflation can be supportive of the Rupee. At the same time lower interest rates can have a depreciatory effect on the Rupee.

India has run a trade deficit for most of its recent history, indicating its imports outweigh its exports. Since the majority of international trade takes place in US Dollars, there are times – due to seasonal demand or order glut – where the high volume of imports leads to significant US Dollar- demand. During these periods the Rupee can weaken as it is heavily sold to meet the demand for Dollars. When markets experience increased volatility, the demand for US Dollars can also shoot up with a similarly negative effect on the Rupee.