- The Indian Rupee softens in Thursday’s early European session.
- Weakness in Asian peers and higher oil prices undermine the INR, but interbank USD sales might help limit its losses.
- US February PPI data and the weekly Initial Jobless Claims will be the highlights later on Thursday.
The Indian Rupee (INR) trades with mild losses on Thursday. The weakness in Asian currencies drags the Indian currency lower. Furthermore, a rebound in crude oil prices could weigh on the local currency as India is the world’s third-largest oil consumer and higher crude oil prices tend to have a negative impact on the INR value.
However, broad-based interbank US Dollar (USD) sales amid a weak global risk environment could provide some support to the INR. Any significant depreciation of the Indian Rupee might be limited due to the potential foreign exchange intervention from the Reserve Bank of India (RBI). Later on Thursday, traders will keep an eye on the US February Producer Price Index (PPI) data, along with the weekly Initial Jobless Claim.
Indian Rupee remains fragile amid global headwinds
- India’s Consumer Price Index (CPI) rose 3.61% YoY in February, the lowest in seven months. This figure came in lower than the previous reading of 4.31% and the 4.0% expected.
- Consensus estimates suggest that the Reserve Bank of India will cut rates by an additional 50 basis points (bps) over the remainder of 2025.
- The US CPI increased 0.2% MoM in February after a sharp 0.5% advance in January, according to the Labor Statistics on Wednesday. This figure came in softer than the expectation of 0.3%. The core CPI, excluding volatile food and energy categories, rose 0.2% MoM during the same reported period versus 0.4% prior.
- On an annual basis, the US headline CPI inflation eases to 2.8% in February from 3.0% in January, softer than the estimate of 2.9%. The core CPI inflation declines to 3.1% in February from 3.3% in the previous month.
- The US budget deficit for the first five months of fiscal 2025 hit a record $1.15 trillion, the Treasury Department said on Wednesday. On a monthly basis, the US deficit totaled just over $307 billion, 4.0% higher than a year earlier.
- Traders are fully pricing in another quarter-point interest rate cut in June, with about 70 basis points of reductions expected throughout 2025.
USD/INR oscillates in a symmetrical triangle
The Indian Rupee trades weaker on the day. The USD/INR pair has consolidated within a symmetrical triangle on the daily chart. However, the bullish outlook of the pair remains intact as the price holds above the key 100-day Exponential Moving Average (EMA), while the 14-day Relative Strength Index (RSI) stands above the midline.
The first upside barrier for USD/INR emerges at 87.30, the upper boundary of a symmetrical triangle. Extended gains above this level could see the rally to 87.53, the high of February 28, en route to an all-time high of 88.00.
On the other hand, the crucial support level for the pair is located at 86.86, representing the low of March 6 and the lower limit of the triangle pattern. Further south, the next contention level to watch is 86.48, the low of February 21, followed by 86.14, the low of January 27.
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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