On Tuesday, the INR opened about 88.90 against the USD, continuing to drop early in the week. It has been fighting to stay above an all-time low of roughly 89.10 for almost 20 days now. The ongoing trade tensions between India and the US, particularly regarding India’s importation of oil from Russia, have significantly impacted the currency’s performance. Reserve Bank of India (RBI) Governor Shaktikanta Das has already taken steps to jumpstart the economy by slashing rates. Inflation worries, in addition to a shift in speculative trends of foreign investment, put additional pressure on the Rupee.
Ongoing Trade Tensions and Economic Indicators
The Indian Rupee, in particular, has come under extreme pressure as a result of ugly trade tensions between India and the United States. This tension is rooted mostly in India’s continuation of Russian oil purchases, which have resulted in harsh criticism from US officials. This internal dispute is only adding to the bearish angst surrounding the currency.
Similarly, notably higher inflation rate in India versus its peers has impacted the Rupee negatively. High interest rates do a lot of good. The opposite has occurred due to RBI’s decision on 7th October 2019 to reduce the Repo Rate by 100 bps to 5.5%. The RBI needs to pivot to raise economic growth. In June, they pulled the trigger on a shocking 50 basis points cut.
To an extent higher real interest rates would serve to support the Indian Rupee as well. If inflation keeps pushing down these gains disproportionately, it risks undoing those improvements.
Foreign Investment Trends and Market Reactions
In recent trading sessions, there has been a noticeable slowdown in foreign institutional investors (FIIs) withdrawing stakes from Indian equities. This trend is partly responsible for the nervousness among foreign investors in the Indian capital markets. On Monday, FIIs became net buyers investing a net figure of about Rs. 240.10 crores in Indian equities.
Despite the dangers ahead, it is these swings in foreign investment that must be a key indicator for the Indian Rupee’s long-term strength. If growth rates continue to improve, investments abroad may increase. This massive influx of investment would significantly increase demand for the Rupee. With sustained trade tensions and inflation issues, the administration has to get serious on these fronts to reassure investors.
Technical Analysis and Future Projections
Technical indicators for the Indian Rupee paint a convoluted picture. The 14-day Relative Strength Index (RSI) has dipped below the 60.00-80.00 overbought zone. That could indicate that bullish momentum has already run out for the time being. That short-term bullish trend is still cautiously positive with the 20-day Exponential Moving Average (EMA) now turning upwards at around 88.71.
The Rupee will continue its rally if it breaks above its all-time high of 89.12. With this, it may allow it to climb to the historic barrier of 90.00. Should the price persist in pulling back, it might sink into the September 12 jubilee of 88.57. Such movement would be a bounce off the 20-day EMA.
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