- The Indian rupee registered modest gains amid further escalation of geopolitical tensions in the Middle East.
- Rising geopolitical tensions between Israel and Hamas may limit INR’s upward trajectory.
- The Fed’s Beige Book update showed “little or no change” in the U.S. economic outlook from September to early October.
The Indian rupee (INR) rose marginally against the US dollar (USD) on Thursday. However, further escalation in geopolitical tensions in the Middle East and higher oil prices could cap the Indian rupee’s upside and benefit safe-haven assets like the US dollar. Additionally, the Indian rupee may face challenges as the $5 billion RBI swap deal matures next week. Traders are concerned about dollar supply in India’s banking system as the Reserve Bank of India (RBI) intends to buy US dollars as reserves in exchange for extending the agreement.
Having said that, soaring oil prices may continue to be a risk factor for the Indian rupee. Market participants will get more clues from the weekly number of new U.S. jobless claims and Thursday’s Philadelphia Fed index. Federal Reserve Chairman Jerome Powell is also scheduled to speak. On Friday, attention will turn to India’s foreign exchange reserves and RBI minutes.
Daily Digest market movements: Indian rupee’s upside remains limited ahead of Fed Powell speech
- U.S. building permits fell to 1.475 million in September, higher than an estimate of 1.45 million.
- U.S. housing starts rose to 1.35 million during the same period, below the market consensus of 1.38 million.
- The Beige Book said U.S. economic activity was “little changed” from September to early October.
- Federal Reserve President Christopher Waller said it was too early to tell whether further interest rate action was needed, but added that decisions would depend on data.
- U.S. retail sales increased 0.7% month over month in September, beating the market consensus of 0.3%. Retail sales management group rose 0.6% month on month (up 0.2% month on month).
- The India Wholesale Price Index (WPI) in September was -0.26% (previously 0.52%), below the market consensus of 0.50%.
Technical Analysis: The pair remains within a narrow trading range of 83.15 to 83.30.
The Indian rupee has been trading within a narrow range of $83.15-$83.30 this week. The USD/INR pair is above the 100-day and 200-day exponential moving averages (EMAs) on the daily chart, indicating that the path of least resistance is towards the upside for the pair. Any follow-through buying could pave the way for all-time highs around 83.45 on the way to the psychological round mark of 84.00. On the downside, the 83.00-83.10 region acts as an important support level for the USD/INR pair. A break below this support zone could cause the pair to fall towards 82.82 (September 12 low).
USD price for the past 7 days
The table below shows the percentage change of the US dollar (USD) against major listed currencies over the past 7 days. The US dollar was the strongest against the New Zealand dollar.
| USD | EUR | GBP | CAD | australian dollar | JPY | new zealand dollar | Swiss franc | |
| USD | 0.85% | 1.54% | 0.98% | 1.81% | 0.52% | 3.14% | -0.24% | |
| EUR | -0.85% | 0.71% | 0.15% | 0.98% | -0.33% | 2.34% | -1.09% | |
| GBP | -1.57% | -0.72% | -0.58% | 0.27% | -1.05% | 1.61% | -1.83% | |
| CAD | -0.99% | -0.14% | 0.57% | 0.83% | -0.47% | 2.18% | -1.23% | |
| australian dollar | -1.85% | -0.99% | -0.27% | -0.85% | -1.32% | 1.35% | -2.09% | |
| JPY | -0.52% | 0.33% | 1.04% | 0.47% | 1.32% | 2.63% | -0.76% | |
| new zealand dollar | -3.27% | -2.38% | -1.69% | -2.26% | -1.40% | -2.74% | -3.52% | |
| Swiss franc | 0.24% | 1.09% | 1.77% | 1.21% | 2.05% | 0.75% | 3.37% |
The heat map shows the percentage change between major currencies. The base currency is selected from the left column and the quote currency is selected from the top row. For example, if you select Euro from the left column and move along the horizontal line to Japanese Yen, the percentage change displayed in the box represents EUR (base)/JPY (estimate).
Frequently asked questions about Indian economy
The Indian economy recorded an average growth rate of 6.13% from 2006 to 2023, making it one of the fastest growing countries in the world. India’s high growth rate has attracted a lot of foreign investment. This includes foreign direct investment (FDI) in physical projects and foreign indirect investment (FII) with foreign funds in Indian financial markets. The higher the level of investment, the higher the demand for Rupee (INR). Fluctuations in dollar demand from Indian importers also affect her INR.
Since India needs to import large amounts of oil and gasoline, oil prices can have a direct impact on the rupee. In the international market, oil is primarily traded in US dollars (USD), so when oil prices rise, the aggregate demand for US dollars increases and Indian importers have to sell more rupees to meet that demand. , the rupee depreciates.
Inflation has a complex impact on the rupee. Ultimately, it shows an increase in the money supply and the overall value of the rupee decreases. However, if it rises above the Reserve Bank of India’s (RBI) target of 4%, the RBI will reduce interest rates by cutting credit. An increase in interest rates, especially real interest rates (the difference between interest rates and inflation), causes the rupee to appreciate. These make India a more profitable place for international investors to park their funds. Lower inflation could support the rupee. At the same time, a fall in interest rates could have a depressing impact on the rupee.
India has had a trade deficit for most of its recent history, with imports exceeding exports. Because the majority of international trade is conducted in US dollars, large imports can lead to significant US dollar demand due to seasonal demand or order gluts. During this period, the rupee may depreciate as rupees are sold in large quantities to meet the demand for dollars. As market volatility increases, the demand for the US dollar also surges, which could have a similar negative impact on the rupee.
