- The Indian Rupee gains ground in Monday’s early European session.
- Fresh foreign and USD inflows support the INR.
- HSBC India Manufacturing PMI rose to 57.6 in March vs. 56.3 prior; Services PMI eased during the same reported period.
- The preliminary reading of the US S&P Global PMI report will be the highlight later on Monday.
The Indian Rupee (INR) trades stronger on Monday after closing its strongest in over two months. Positive domestic equities and fresh foreign fund inflows could provide some support to the Indian currency. Additionally, the US Dollar (USD) inflows help mitigate the impact of the decline in Asian peers.
The latest preliminary data released on Monday showed that the HSBC India Manufacturing Purchasing Managers Index (PMI) rose to 57.6 in March from 56.3 in February. Additionally, the Indian Services PMI eased to 57.7 in March versus 59.0 prior. The Composite PMI declined to 58.6 in March from 58.8 in February. The local currency remains strong in an immediate reaction to the mixed PMI data.
Nonetheless, a rebound in Crude Oil prices amid the ongoing geopolitical tensions in the Middle East might weigh on the local currency as India is the world’s third-largest oil consumer. Investors brace for the advanced US S&P Global PMI data, which will be released later on Monday.
Indian Rupee gains momentum as inflows resume
- Forex traders said the INR has been gaining as FPIs turned net buyers for the second time during the week with respect to equity and have been buying heavily into debt.
- “Given the current market dynamics, the USD-INR pair is expected to trade between 86.00 and 86.80 in the near term. However, with the current global headwinds a slight rebound towards the 86.50-86.60 range is expected,” said CR Forex Advisors MD Amit Pabari.
- Trump has declared April 2 to be “Liberation Day” for the US, when he will implement so-called reciprocal tariffs that seek to equalize US tariffs with those charged by trading partners, as well as tariffs on sectors such as automobiles, pharmaceuticals, and semiconductors, which he has repeatedly stated would be enacted on that day.
- Trump’s administration said that it will revoke the temporary legal status of more than half a million migrants from Cuba, Haiti, Nicaragua and Venezuela, per BBC. Those migrants have been warned to leave the country before their permits and deportation shields are cancelled on April 24.
- Fed policymakers projected two quarter-point cuts later this year, the same median forecast as in December.
USD/INR seems fragile, downside risks appear below the 100-day EMA
The Indian Rupee trades on a firmer note on the day. The bullish outlook of the USD/INR pair looks vulnerable as the price hovers around the key 100-day Exponential Moving Average on the daily chart. The pair could resume its downside bias if it decisively crosses below the 100-day EMA. The 14-day Relative Strength Index (RSI) stands below the midline near 32.70, suggesting that further downside looks favorable.
The first upside barrier for USD/INR emerges at 86.48, the low of February 21. Further north, the next hurdle is seen at the 87.00 psychological level. Sustained trading above this level could see a rally to 87.38, the high of March 11.
On the other hand, a breach of the 100-day EMA of 85.97 could drag the pair lower to 85.60, the low of January 6. The additional downside filter to watch is 84.84, the low of December 19, 2024.
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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