• The Indian Rupee loses ground in Thursday’s Asian session. 
  • Firmer US Dollar and outflows from Indian equities weigh on the INR. 
  • Investors will closely watch Indian PM Modi’s meeting with Trump administration’s officials, and the US PPI data. 

The Indian Rupee (INR) weakens on Thursday, pressured by the renewed US Dollar (USD) demand. Additionally, maturity positions in the non-deliverable forwards (NDF) segment and equity sales by overseas investors could drag the INR lower. 

On the other hand, strong intervention from the Reserve Bank of India (RBI) might help limit the local currency’s losses. The fall in crude oil prices after US President Donald Trump called Russian President Vladimir Putin and Ukrainian President Volodymyr Zelenskyy to discuss ending the war in Ukraine might provide some support to the INR as India is the world's third-largest consumer of crude oil. 

India’s Prime Minister Narendra Modi is scheduled to talk with multiple Trump administration officials during his trip to Washington, D.C., including Elon Musk, who leads Trump’s so-called Department of Government Efficiency.

Government officials said that Modi's meeting with Musk is anticipated to include a discussion of Musk's private business ventures, such as the growth of Starlink and Tesla in India. On the US docket, the weekly Initial Jobless Claims and Producer Price Index (PPI) will be released later on Thursday. 

Indian Rupee remains weak amid multiple challenges

  • According to Reuters, citing government officials, Modi is prepared to cut India's tariffs in multiple sectors ahead of his meeting with Trump in order to prevent a potential trade war with the United States.
  • India’s retail inflation, measured by the Consumer Price Index (CPI) stood at 4.31% in January, down from 5.22% in December, the Ministry of Statistics & Programme Implementation showed on Monday. This reading came in softer than the market consensus of 4.6%. 
  • The US CPI rose 3.0% year-on-year in January versus 2.9% prior, according to the US Bureau of Labor Statistics on Wednesday. This reading came in hotter than the 2.9% expected. 
  • The so-called core CPI, which excludes food and energy costs, climbed 3.3% in January, compared to the previous reading of 3.2% and the estimation of 3.1%. 
  • On a monthly basis, the headline CPI inflation jumped to 0.5% in January from 0.4% in December, while the core CPI increased to 0.4% in January from 0.2% recorded in December. 
  • Traders expected just one quarter-point rate cut this year, down from two reductions before the CPI report. 
  • Fed Chair Jerome Powell said the recent inflation data showed that while the central bank has made substantial progress toward taming inflation, there is still more work to do. 

USD/INR forms a shooting star candlestick, downward pressure expected in the near term

The Indian Rupee edges lower on the day. Technically, the constructive outlook of the USD/INR pair remains intact, with the price holding above the key 100-day Exponential Moving Average (EMA) on the daily timeframe. The path of least resistance is to the upside as the 14-day Relative Strength Index (RSI) stands above the midline near 56.00. 

The 87.00 psychological level acts as the first upside barrier for USD/INR. A decisive break above this level could see a rally to an all-time high near 88.00. Extended gains could pave the way to 88.50. 

On the other hand, the first downside target to watch is 86.35, the low of February. Bearish candlesticks below the mentioned level could push USD/INR back down toward 86.14, the low of January 27. 

RBI FAQs

The role of the Reserve Bank of India (RBI), in its own words, is "..to maintain price stability while keeping in mind the objective of growth.” This involves maintaining the inflation rate at a stable 4% level primarily using the tool of interest rates. The RBI also maintains the exchange rate at a level that will not cause excess volatility and problems for exporters and importers, since India’s economy is heavily reliant on foreign trade, especially Oil.

The RBI formally meets at six bi-monthly meetings a year to discuss its monetary policy and, if necessary, adjust interest rates. When inflation is too high (above its 4% target), the RBI will normally raise interest rates to deter borrowing and spending, which can support the Rupee (INR). If inflation falls too far below target, the RBI might cut rates to encourage more lending, which can be negative for INR.

Due to the importance of trade to the economy, the Reserve Bank of India (RBI) actively intervenes in FX markets to maintain the exchange rate within a limited range. It does this to ensure Indian importers and exporters are not exposed to unnecessary currency risk during periods of FX volatility. The RBI buys and sells Rupees in the spot market at key levels, and uses derivatives to hedge its positions.



 

Source: Fxstreet