- The Indian Rupee loses ground during Thursday’s Asian session.
- The weaker US Dollar and likely RBI intervention support the INR.
- Investors await the US Initial Jobless Claims and Fedspeak later on Thursday.
The Indian Rupee (INR) weakens on Thursday, snapping the three-day winning streak. Concerns on the US economy weigh on the US Dollar (USD) and provide some support to the local currency. Additionally, the likely intervention by the Reserve Bank of India (RBI) could help limit the INR’s losses.
On the other hand, the expectation that the RBI will cut its interest rates further is likely to exert downward pressure on the INR. India’s capital flows have remained negative for the fifth consecutive month. Persistent outflows by foreign institutional investors might contribute to the Indian Rupee’s downside.
Investors will keep an eye on the US Initial Jobless Claims, which is due later on Thursday. The US Federal Reserve (Fed) officials are scheduled to speak on the same day, including Patrick Harker, Thomas Barkin and Christopher Waller. On Friday, the US February Nonfarm Payrolls (NFP) will be closely watched.
Indian Rupee weakens amid sustained foreign institutional investors fund outflows
- RBI said on Wednesday it will infuse $21 billion in Rupee liquidity into the banking system in a bid to ease lending conditions and boost economic growth.
- India’s HSBC Composite PMI eased to 58.8 in February vs. 60.6 prior. Meanwhile, the Services PMI declined to 59 from 61.1 in the previous reading, beating the estimation of 57.3.
- “Job creation and charge inflation remained strong during February. Looking ahead, business sentiment remains broadly positive but did slightly slip last month to its lowest level since August 2024,” said Pranjul Bhandari, chief India economist at HSBC.
- Trump is considering exempting certain agricultural products from tariffs imposed on Canada and Mexico, a Bloomberg reporter said on X late Wednesday.
- The White House said on Wednesday that Trump is exempting automakers from newly imposed tariffs on Mexico and Canada for one month.
- Private sector employment in the US grew by 77K in February, compared to the previous reading of 186K (revised from 183K), according to the Automatic Data Processing (ADP) on Wednesday. This figure came in weaker than initial estimates of 140K.
USD/INR‘s longer-term bullishness to be tested by bearish closing marubozu in the shorter term
The Indian Rupee trades softer on the day. The positive view of the USD/INR pair remains in play, with the price holding above the key 100-day Exponential Moving Average (EMA) on the daily chart. Nonetheless, further consolidation cannot be ruled out as the 14-day Relative Strength Index (RSI) hovers around the midline near 50.0, suggesting neutral momentum in the near term.
The immediate resistance level for USD/INR emerges at 87.53, the high of February 28. Any follow-through buying above this level could set their sights on an all-time high near 88.00, en route to 88.50.
On the flip side, the first downside target to watch is 86.48, the low of February 21. Extended losses could see a drop to 86.14, the low of January 27, followed by 85.60, the low of January 6.
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.
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