Indian Rupee Rises Against US Dollar Amid RBI Intervention Hopes

The Indian Rupee (INR) opened slightly higher against the US Dollar (USD) on Thursday, trading at approximately 88.60 after Indian markets were closed on Wednesday for the Prakash Gurpurb Sri Guru Nanak Dev holiday. Investors are optimistic that the Reserve Bank of India (RBI) will intervene in the currency market to stabilize the Rupee and prevent it from falling below its all-time low of around 89.10.

The Rupee’s modest gains come in response to recent actions by the RBI, which reportedly intervened in the currency markets on Tuesday, engaging in both the non-deliverable forward (NDF) market and the onshore spot market. This move reinforces the central bank’s commitment to preventing further depreciation of the Rupee. According to a report from Reuters, this intervention aims to curb the currency’s losses as foreign institutional investors continue to withdraw from the Indian equity market.

Caution prevails among investors as they navigate the uncertain landscape of international trade, particularly concerning the ongoing trade negotiations between the United States and India. In the first two trading days of November, foreign institutional investors sold shares worth a cumulative Rs. 2,950.79 crore in the Indian equity market, marking a challenging start to the month.

The USD/INR pair’s slight decline is also influenced by a slight pullback in the US Dollar, which had recently reached a five-month high. The US Dollar Index, which measures the value of the dollar against six major currencies, traded marginally lower at approximately 100.05, down from highs of 100.35. This shift follows the release of better-than-expected US economic data, including the ADP Employment Change and ISM Services Purchasing Managers’ Index for October, which indicated a stronger job market than anticipated.

In October, the US private sector added 42,000 jobs, significantly above the estimated 25,000. Additionally, the Services PMI registered at 52.4, surpassing projections of 50.8 and the previous month’s figure of 50.0. These indicators have led to reduced expectations for further interest rate cuts by the US Federal Reserve this year.

Data from the CME FedWatch tool shows that the likelihood of a 25 basis point rate cut to 3.50%-3.75% during the December meeting has decreased to 62.5%, down from 94.4% before the last monetary policy announcement on October 29, 2023. This shift in sentiment follows comments from Fed Chairman Jerome Powell, who stated that a December rate cut is “far from a foregone conclusion.”

In technical analysis, the USD/INR pair is currently holding above the 20-day Exponential Moving Average, which is positioned around 88.58. The 14-day Relative Strength Index has declined after failing to break above 60.00, suggesting selling pressure at higher levels. Key support for the pair remains around the August 21 low of 87.07, while the all-time high of 89.12 serves as a significant resistance point.

The Indian Rupee’s performance is sensitive to various external factors, including crude oil prices, the value of the US Dollar, and foreign investment levels. Direct intervention by the RBI, along with interest rate adjustments, plays a crucial role in stabilizing the currency. Higher interest rates typically strengthen the Rupee, as they attract investors seeking better returns.

As market dynamics continue to evolve, the outlook for the Indian Rupee remains closely tied to external economic conditions and domestic monetary policy. The ongoing adjustments by the RBI and the responses from foreign investors will be critical in shaping the currency’s trajectory in the coming weeks.