August 21, 2024
New Delhi, India
USDINR Analysis
The Indian Rupee (INR) edged lower during Wednesday’s Asian trading session, reflecting ongoing challenges in the currency market. Persistent demand for the US dollar (USD) from importers and concerns over trade deficits have contributed to the Rupee’s decline, making it the worst-performing Asian currency in August. However, falling crude oil prices and potential intervention from the Reserve Bank of India (RBI) might limit further losses.
Rupee’s Performance and Factors Influencing It: On Wednesday, the Indian Rupee weakened by 7 paise to 83.84 against the US dollar in early trade, following a weak opening at 83.79 at the interbank foreign exchange. The currency’s decline is primarily driven by continuous USD demand from importers and subdued domestic equity market trends. Additionally, foreign investors have withdrawn approximately $2.5 billion from Indian shares in August, further pressuring the Rupee.
Despite these challenges, the Rupee’s sharp fall was cushioned by lower crude oil prices and a slightly weaker American currency. The dollar index, which measures the greenback’s strength against a basket of six currencies, was marginally higher by 0.02% at 101.31.
RBI’s Role and Potential Interventions: Market analysts suggest that any significant weakening of the Rupee could prompt the RBI to intervene by selling USD to prevent the local currency from breaching the critical 84.00 mark. Such interventions are not uncommon as the RBI aims to maintain stability in the currency market, especially amid global economic uncertainties.
Also Read: PM Modi Congratulates RBI Governor Shaktikanta Das on ‘A+’ Rating in Global Finance Report
Upcoming Economic Data and Market Expectations: Traders are closely monitoring the preliminary HSBC Purchasing Managers Index (PMI) data for India, set to be released on Thursday, for fresh insights into the country’s economic health. Additionally, the focus will be on Federal Reserve (Fed) Chair Jerome Powell’s speech at the Jackson Hole Symposium on Friday. Speculation is growing that Powell may signal a potential interest rate cut, which could exert selling pressure on the USD and influence the INR’s trajectory.
According to the CME FedWatch Tool, markets are currently pricing in a 67.5% chance of a 25 basis points rate cut by the Fed in September. However, Fed Governor Michelle Bowman has expressed caution, stating that overreacting to any single data point could jeopardize the progress made in controlling inflation.
India’s Economic Indicators: India’s economic indicators also reflect the current challenges. Exports have declined by 6% in the current fiscal year through July compared to the same period last year, and foreign direct investment (FDI) has dropped by 3.5% in FY24. These factors contribute to the broader economic concerns that are impacting the Rupee’s performance.
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