The USD/INR pair continues to rise for the third day in a row, trading near a recent record high of 95.40 on Tuesday in the Asian hours. Investors are likely to watch the release of the HSBC Composite and Services Purchasing Managers’ Index (PMI) on Wednesday.
The USD/INR pair is gaining ground as the US dollar (USD) strengthens in response to safe-haven demand following Iran’s attack on the United Arab Emirates (UAE). CNBC reported on Monday that the United Arab Emirates had been targeted by Iranian drones and missiles, while the United States said it had destroyed Iranian boats in the Strait of Hormuz. US President Donald Trump has warned that Iran will be “wiped off the face of the earth” if it targets US ships protecting commercial ships passing through the Strait of Hormuz.
The Indian rupee (INR) faced challenges as an overnight rise in crude oil prices dampened investor sentiment. However, oil prices have since fallen as concerns about immediate supply disruptions eased and the United States (US) Navy took steps to reopen the key Strait after Iran attempted to close it. Maersk, a Danish shipping and logistics company, later confirmed that its Alliance Fairfax, a U.S.-flagged motor carrier, had left the strait under U.S. military escort.
Indian Prime Minister Narendra Modi’s Bharatiya Janata Party (BJP) won a third consecutive term in Assam and captured the opposition stronghold in West Bengal in a key election.
On Monday, the HSBC Manufacturing Purchasing Managers’ Index (PMI) for India was at 54.7 for April, revised down from a preliminary 55.9 but higher than the previous month’s 53.9. Both production and recent orders continued to augment, although the augment was modest compared to the levels seen over the past three and a half years.
Foreign institutional investors (FIIs) became net buyers of Indian equities on Monday, after nine consecutive days of selling, with inflows of 28.36 billion rupees ($298 million). According to Reuters, domestic institutional investors (DIIs) bought local shares worth 47.64 billion rupees, marking the seventh consecutive buying session.
Earnings-related moves in individual stocks are also expected to remain in focus. Nifty 50 members Larsen & Toubro, Mahindra and Mahindra and Hero MotoCorp are scheduled to announce their quarterly results later in the day.
India’s foreign exchange reserves have fallen from a peak of $728.5 billion, while equity outflows in March and April reached $19 billion. Nevertheless, the Reserve Bank of India (RBI) said it was satisfied with reserve levels sufficient to cover 11 months of imports, although recent policy discussions underline the renewed urgency of strengthening buffers in the face of ongoing capital outflows.
Technical Analysis: USD/INR Nears Top of Square Channel, All-Time Highs Near 95.50
At the time of writing on Tuesday, the USD/INR rate was trading around 95.40. Technical analysis of the daily chart shows the potential for a bullish breakout as the pair tests the upper boundary of the rectangular channel.
However, the USD/INR pair maintains a bullish bias in the compact term as the price remains above the nine-day and 50-day exponential moving averages (EMAs). The 14-day relative strength index (RSI) of 66.7 indicates mighty positive momentum heading towards overbought territory, suggesting that bullish pressure remains, leaving the pair vulnerable to periods of consolidation if buyers lose traction.
The USD/INR pair is testing the upper boundary of the rectangle, followed by an all-time high of 95.40, which was recorded on May 4. On the other hand, initial support is located at the nine-day EMA at 94.71. A break below the short-term average would lead the pair to test the 50-day EMA at 93.20, followed by the lower box around 92.50 and the seven-week low at 92.14.
(The story was corrected at 6:10 GMT on May 5 to say in the first paragraph that HSBC PMI data would be released on Wednesday, not Tuesday.)
Today’s US dollar price
The table below shows the current percentage change of the United States Dollar (USD) against the major listed currencies. The US dollar was strongest against the Australian dollar.
| USD | EUR | GBP | JPY | BOOR | AUD | NZD | INR | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.04% | 0.06% | 0.00% | -0.02% | 0.16% | 0.10% | 0.14% | |
| EUR | -0.04% | 0.00% | -0.02% | -0.03% | 0.12% | 0.06% | 0.25% | |
| GBP | -0.06% | -0.00% | -0.04% | -0.08% | 0.10% | 0.07% | 0.09% | |
| JPY | 0.00% | 0.02% | 0.04% | -0.01% | 0.15% | 0.11% | 0.30% | |
| BOOR | 0.02% | 0.03% | 0.08% | 0.00% | 0.16% | 0.11% | 0.32% | |
| AUD | -0.16% | -0.12% | -0.10% | -0.15% | -0.16% | -0.04% | 0.15% | |
| NZD | -0.10% | -0.06% | -0.07% | -0.11% | -0.11% | 0.04% | -0.01% | |
| INR | -0.14% | -0.25% | -0.09% | -0.30% | -0.32% | -0.15% | 0.01% |
The heat map shows the percentage changes of the major currencies relative to each other. The base currency is selected from the left column and the quote currency from the top row. For example, if you select the US dollar from the left column and move along the horizontal line to the Japanese yen, the percentage change displayed in the box will represent USD (base)/JPY (quote).
Indian Rupee FAQs
The Indian rupee (INR) is one of the most sensitive currencies to external factors. The price of oil (the country is largely dependent on imported oil), the value of the US dollar – most trade takes place in USD – and the level of foreign investment are influenced. Direct intervention by the Reserve Bank of India (RBI) in the foreign exchange markets to maintain a stable exchange rate, as well as the level of interest rates set by the RBI, are other major factors influencing the rupee rate.
The Reserve Bank of India (RBI) actively intervenes in the forex markets to maintain a stable exchange rate and facilitate trading. Moreover, the RBI is trying to keep the inflation rate at the target of 4% by adjusting interest rates. Higher interest rates tend to strengthen the rupee. This is due to the role of the carry trade, where investors borrow from countries with lower interest rates to place their money in countries offering relatively higher interest rates and profit from the difference.
Macroeconomic factors affecting the value of the rupee include inflation, interest rates, economic growth rate (GDP), trade balance and foreign investment inflows. A higher growth rate may lead to more foreign investment, increasing demand for the rupee. A less negative trade balance will ultimately lead to a stronger rupee. Higher interest rates, especially real rates (interest rates net of inflation), are also positive for the rupee. A risk-laden environment may lead to higher inflows of foreign direct and indirect investment (FDI and FII), which also benefits the rupee.
Higher inflation, especially if it is comparably higher than in other Indian countries, is generally negative for the currency because it reflects devaluation due to oversupply. Inflation also increases the cost of exports, which leads to more rupees being sold to buy foreign imports, which is negative against 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 occurs in the case of lower inflation.
