- USD/INR surges over 0.6% to near 86.25 due to a sharp recovery in the US Dollar, rally in the Oil price, and FIIs selling equities.
- Middle East tensions have increased demand for the US Dollar as a safe haven.
- The Oil price soars over 7% as Israel strikes Iran.
The Indian Rupee (INR) is down over 0.6% to near 86.25 against the US Dollar (USD) during the European trading session on Friday. The USD/INR pair surges as the Indian Rupee underperforms due to multiple headwinds, including soft India’s Consumer Price Index (CPI) data for May, a stellar upside move in the Oil price and dismal market sentiment amid tensions in the Middle East, and selling by Foreign Institutional Investors (FIIs) in the Indian equity market. Another reason behind the sharp upside move in the pair is the USD’s strong recovery, driven by an increase in demand for safe-haven assets.
The data showed on Thursday that year-on-year CPI rose by 2.82% on year, the lowest level seen in over six years. Economists expected the retail headline inflation to have grown by 3%, slower than 3.16% in April. This is the fourth straight month when the headline CPI has come in below the Reserve Bank of India’s (RBI) target of 3.7% for the current financial year, which it set last week after front-loading interest rate cuts.
According to the CPI report, decelerating food inflation contributed significantly to cooling broader price pressures. The food inflation grew at a modest pace of 1%, the lowest level seen since October 2021.
The scenario of cooling inflationary pressures would boost market expectations that the RBI will cut interest rates again this year. In last week’s policy meeting, RBI Governor Sanjay Malhotra changed the policy stance from “accommodative” to “neutral”, citing that there is little room for further monetary policy expansion.
Meanwhile, surging Oil prices and dismal market mood due to tensions in the Middle East region have weighed significantly on the Indian Rupee. Higher Oil prices bode poorly for the Indian currency, given that India is one of the world’s largest oil importers. Also, the appeal of risk-perceived currencies, such as the Indian Rupee, diminishes amid geopolitical tensions.
On the investment front, FIIs have withdrawn Indian equities in cash worth Rs. 3,548.87 crores till June 12 as profit booking kicks in after a strong recovery in Nifty50 since April. The outflow of foreign currency is an unfavorable scenario for the Indian Rupee.
Daily digest market movers: Indian Rupee slumps due to Israel-Iran conflict
- The US Dollar attracts substantial bids on Friday, tensions in the Middle East have increased its safe-haven demand. The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, is up 0.35% to near 98.20 from its three-year low of 97.60 posted on Thursday.
- Earlier in the day, Israel struck a number of military and nuclear bases in the northeast of Iran’s capital, Tehran, in which the head of the Revolutionary Guard, Hossein Salami, was killed. Tel Aviv has confirmed that this is a unilateral military attack on Iran, aiming at “rolling back the Iranian threat to Israel’s very survival”, The Guardian reported. Meanwhile, Israel’s prime minister, Benjamin Netanyahu, has confirmed that their so-called “Operation Rising Lion” will continue for “many days”.
- Meanwhile, tensions between Israel and Iran have escalated as Tehran has retaliated by launching about 100 drones towards Israel, according to the Israel Defense Forces (IDF), BBC reported. Iran’s Supreme Leader Ayatollah Ali Khamenei said that Israel “should anticipate a severe punishment” following overnight attacks.
- On the domestic front, the major trigger for the US Dollar will be the Federal Reserve’s (Fed) monetary policy announcement on Wednesday, in which the central bank is expected to leave interest rates steady in the current range of 4.25%-4.50%.
- Investors will closely monitor the Fed’s guidance on the monetary policy outlook for the remainder of the year. According to the CME FedWatch tool, the Fed is expected to start reducing interest rates from the September policy meeting.
- On Thursday, US President Donald Trump reiterated criticism of the Fed’s stance to avoid any monetary policy adjustments at the current juncture after the release of the Producer Price Index (PPI) data for May, which showed that the producer inflation grew at a slower-than-projected pace. “Raise your rates. You don’t have to keep them up here. If it’s [inflation] going to go up, I’m okay with you raising–but it’s [inflation] down, and we’re going out to financing, and I may have to force something,” Trump said at the White House, Reuters reported.
US Dollar PRICE Today
The table below shows the percentage change of US Dollar (USD) against listed major currencies today. US Dollar was the strongest against the New Zealand Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.44% | 0.35% | 0.27% | 0.14% | 0.68% | 0.89% | 0.25% | |
| EUR | -0.44% | -0.04% | -0.12% | -0.24% | 0.33% | 0.42% | -0.19% | |
| GBP | -0.35% | 0.04% | -0.14% | -0.28% | 0.29% | 0.45% | -0.13% | |
| JPY | -0.27% | 0.12% | 0.14% | -0.12% | 0.42% | 0.60% | -0.01% | |
| CAD | -0.14% | 0.24% | 0.28% | 0.12% | 0.53% | 0.77% | 0.14% | |
| AUD | -0.68% | -0.33% | -0.29% | -0.42% | -0.53% | 0.18% | -0.42% | |
| NZD | -0.89% | -0.42% | -0.45% | -0.60% | -0.77% | -0.18% | -0.60% | |
| CHF | -0.25% | 0.19% | 0.13% | 0.01% | -0.14% | 0.42% | 0.60% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick 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).
Technical Analysis: USD/INR returns above 20-day EMA
USD/INR recovers losses seen in the past few weeks and jumps above 86.00 during Asian trading hours on Friday. The pair bounces back sharply after discovering strong buying interest slightly below the 20-day Exponential Moving Average (EMA), which currently oscillates around 85.75.
The 14-day Relative Strength Index (RSI) jumps to near 56.00. A fresh bullish momentum would emerge if the RSI breaks above 60.00.
Looking down, the 20-day EMA is a key support level for the major. On the upside, the May 23 high of 86.44 will be a critical hurdle for the pair.
Risk sentiment FAQs
In the world of financial jargon the two widely used terms “risk-on” and “risk off” refer to the level of risk that investors are willing to stomach during the period referenced. In a “risk-on” market, investors are optimistic about the future and more willing to buy risky assets. In a “risk-off” market investors start to ‘play it safe’ because they are worried about the future, and therefore buy less risky assets that are more certain of bringing a return, even if it is relatively modest.
Typically, during periods of “risk-on”, stock markets will rise, most commodities – except Gold – will also gain in value, since they benefit from a positive growth outlook. The currencies of nations that are heavy commodity exporters strengthen because of increased demand, and Cryptocurrencies rise. In a “risk-off” market, Bonds go up – especially major government Bonds – Gold shines, and safe-haven currencies such as the Japanese Yen, Swiss Franc and US Dollar all benefit.
The Australian Dollar (AUD), the Canadian Dollar (CAD), the New Zealand Dollar (NZD) and minor FX like the Ruble (RUB) and the South African Rand (ZAR), all tend to rise in markets that are “risk-on”. This is because the economies of these currencies are heavily reliant on commodity exports for growth, and commodities tend to rise in price during risk-on periods. This is because investors foresee greater demand for raw materials in the future due to heightened economic activity.
The major currencies that tend to rise during periods of “risk-off” are the US Dollar (USD), the Japanese Yen (JPY) and the Swiss Franc (CHF). The US Dollar, because it is the world’s reserve currency, and because in times of crisis investors buy US government debt, which is seen as safe because the largest economy in the world is unlikely to default. The Yen, from increased demand for Japanese government bonds, because a high proportion are held by domestic investors who are unlikely to dump them – even in a crisis. The Swiss Franc, because strict Swiss banking laws offer investors enhanced capital protection.
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