The Indian Rupee (INR) trades marginally higher against the US Dollar (USD) while entering the weekend. The USD/INR pair ticks down to near 96.30 as the Indian currency rises, following Reserve Bank of India’s intervention.
According to a Reuters report, the Indian central bank likely intervened to limit the Indian Rupee’s fall. The report also showed that the central bank has been intervening almost daily in both the spot and non-deliverable forward markets to support the currency; however, the scale of intervention has been relatively measured considering the intensity of the pressure on the rupee.
However, the support regained by the Indian currency after underperforming the entire week could prove to be short-lived amid fears of further escalation in global energy supply disruption.
In the opening trade, the MCX Crude Oil contract expiring on July 20 is up 1.16% to near Rs. 7,700, close to its monthly high of Rs. 7,832 posted on Tuesday.
Currencies from economies, such as India, which rely heavily on oil imports to meet their energy needs, tend to underperform in a high-oil-price environment.
Iran threatens the closure of Red Sea if US attacks Iranian infrastructure
Earlier in the day, Iran asked Yemen’s Houthi militia to stand ready to close the Red Sea oil route if the United States (US) strikes Iranian power infrastructure, Reuters reported. Such a scenario would trim the already-low global oil supply, which could further accelerate fears of high inflation globally.
The threat from Iran is a response to remarks from US President Donald Trump, in an interview with Fox News, in which he said that military forces would be authorized to attack Iranian bridges and power plants if the nation doesn’t come to the table for negotiations.
US Dollar gains on risk-off mood
An improvement in the demand for safe-haven assets amid intensifying military aggression between the US and Iran has boosted the appeal of the US Dollar. At press time, the US Dollar Index (DXY), which gauges the Greenback’s value against six major currencies, trades 0.1% higher to near 100.80.
However, the Greenback will likely conclude the week on a negative note, as traders have trimmed Federal Reserve (Fed) interest rate hike bets, following the release of the soft US Consumer Price Index (CPI) report of June on Tuesday.
According to the CME FedWatch tool, the odds of the Fed delivering an interest rate hike in the meeting later this month have dropped significantly to 10.2% from 24.6% recorded a week ago.
India’s growth fundamentals remain strong despite headwinds
Earlier in the day, RBI Governor Sanjay Malhotra said in an interview with Doordarshan that India’s fundamentals remain strong, and the economic expansion will remain intact at a higher pace despite geopolitical tensions. RBI’s Malhotra warned that ongoing tensions in the Middle East and the prospects of a weak monsoon season are seen as key risks for the economy.
Technical Analysis: USD/INR approaches all-time high near 97.10
USD/INR trades at around 96.30, maintaining a bullish near-term bias as it holds above the 20-day Exponential Moving Average (EMA) at 95.55. The pair extends its advance after reclaiming the short-term trend indicator, while the Relative Strength Index (14) at 62.99 stays in positive territory, hinting that upside momentum remains constructive but not yet overbought.
On the downside, immediate support is seen at the 20-day EMA at 95.55, which reinforces the underlying bullish structure as long as it holds. Looking up, the all-time high at around 97.10 will be the key barrier for the pair.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
US Dollar FAQs
The US Dollar (USD) is the official currency of the United States of America, and the ‘de facto’ currency of a significant number of other countries where it is found in circulation alongside local notes. It is the most heavily traded currency in the world, accounting for over 88% of all global foreign exchange turnover, or an average of $6.6 trillion in transactions per day, according to data from 2022.
Following the second world war, the USD took over from the British Pound as the world’s reserve currency. For most of its history, the US Dollar was backed by Gold, until the Bretton Woods Agreement in 1971 when the Gold Standard went away.
The most important single factor impacting on the value of the US Dollar is monetary policy, which is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability (control inflation) and foster full employment. Its primary tool to achieve these two goals is by adjusting interest rates.
When prices are rising too quickly and inflation is above the Fed’s 2% target, the Fed will raise rates, which helps the USD value. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates, which weighs on the Greenback.
In extreme situations, the Federal Reserve can also print more Dollars and enact quantitative easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system.
It is a non-standard policy measure used when credit has dried up because banks will not lend to each other (out of the fear of counterparty default). It is a last resort when simply lowering interest rates is unlikely to achieve the necessary result. It was the Fed’s weapon of choice to combat the credit crunch that occurred during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy US government bonds predominantly from financial institutions. QE usually leads to a weaker US Dollar.
Quantitative tightening (QT) is the reverse process whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing in new purchases. It is usually positive for the US Dollar.
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