- The Indian Rupee holds steady in Wednesday’s early European session.
- The concerns about Trump’s tariffs and equity outflows weigh on the INR, but RBI intervention could help contain excessive losses.
- The Fed monetary policy meeting will be closely monitored later on Wednesday.
The Indian Rupee (INR) steadies on Wednesday after its largest single-day fall in two weeks in the previous session. The local currency remains on the defensive amid renewed concerns about trade tariffs from US President Donald Trump, along with the sustained foreign fund outflows. Nonetheless, the routine foreign exchange intervention from the Reserve Bank of India (RBI) might help limit the INR’s losses.
The US Federal Reserve (Fed) interest rate decision will be in the spotlight later on Wednesday, with no change in rate expected. Investors will closely monitor Fed Chair Jerome Powell’s press conference as it might offer additional insights into the monetary policy outlook. The cautious stance from the Fed officials could provide some support to the Greenback and act as a headwind for the pair. On the Indian docket, the Federal Fiscal Deficit will take center stage on Friday.
Indian Rupee flat lines amid Trump’s tariff threats
- India must shift away from its dependence on raw material exports and focus on further expanding its manufacturing sector to boost economic growth, said Indian Prime Minister Narendra Modi.
- “Malaysia, Singapore and India stand out as the economies within Emerging Asia where these critical products might account for significant proportions of their shipments to the U.S., followed by Taiwan, the Philippines, Thailand and Korea,” Barclays said in a note.
- Late Tuesday, US President Donald Trump’s press secretary, Karoline Leavitt, said that the plan to impose Canada and Mexico with punishing tariffs on February 1 is still in play.
- The Durable Goods Orders in the US declined by 2.2%, or $6.3 billion, in December to $276.1 billion, according to the US Census Bureau on Tuesday. This reading followed a 2% decrease reported in November and came in worse than the market expectation for an increase of 0.8%.
- Market pricing is pointing to a near 100% certainty that the Fed will keep the policy rate in a target range of 4.25%-4.50%, according to the CME FedWatch tool.
USD/INR maintains its constructive bias in the longer term
The Indian Rupee trades a flat note on the day. The USD/INR pair keeps the bullish vibe on the daily timeframe as the price has broken above the descending triangle pattern while being well-supported above the key 100-day Exponential Moving Average (EMA). The upward momentum is confirmed by the 14-day Relative Strength Index (RSI), which is located above the midline near 65.30, indicating that further upside cannot be ruled out.
The key resistance level for USD/INR emerges at an all-time high of 86.69. Sustained trading above the mentioned level could see a rally to the 87.00 psychological mark.
In the bearish event, the initial support level is seen at 86.31, the low of January 28. A breach of this level could pave the way to 86.14, the low of January 24. Further south, the next contention to watch is 85.85, the low of January 10.
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.
Read the full article here
