At the beginning of the week the US Dollar to Indian Rupee (USD/INR) exchange rate was trending in a slightly stronger position as the appeal of the ‘Greenback’ increased before this week’s major US economic reports.
Last week’s upbeat US Initial Jobless Claims and Durable Goods Orders figures surprised to the upside and boosted the odds of a Federal Reserve interest rate increase taking place sooner than currently projected. As a consequence, the US Dollar broadly strengthened.
As trading began on Monday the US Dollar was largely holding onto previous gains and one forex strategist said this of the currency’s performance; ‘We expect Dollar strength to unfold. We are going to see divergence in Monetary Policy. In the US it will be slowly and surely towards eventual rate hikes. We are going to see a rise in short-term US yields and this should bode well for the Dollar.’
The Rupee, meanwhile, eased lower against several of its rivals as increased demand for the US Dollar among local importers took a toll.
This week several major US reports are scheduled for publication, with some having the potential to drive the US Dollar considerably higher against the majority of its currency counterparts.
Perhaps the most influential event will be the Federal Open Market Committee’s policy decision. Given the recent upbeat US reports, the Fed may well offer more of a hint regarding the timeline for increasing interest rates at this gathering.
Of course, the US second quarter growth data could also be a big cause of market movement. The US economy contracted sharply in the first three months of the year, but investors are hoping for an impressive rebound and growth of 3.0%.
Similarly, the US Non-Farm Payrolls report (due out on Friday) is expected to show that the US economy added 231,000 positions in July, which would keep the nation’s unemployment rate at 6.1%.
The US Dollar to Indian Rupee (USD/INR) exchange rate could also experience volatility on Friday as India’s HSBC Manufacturing PMI report is published.
The Pound Sterling to Indian Rupee (GBP/INR) exchange rate began trading on Monday 0.15% stronger.
Over the next five days the UK’s Mortgage Approvals and Consumer Confidence reports are likely to be the main drivers of GBP/INR movement.
US Dollar to Indian Rupee Exchange Rate Forecast
Although the Rupee is currently enjoying a comparatively stable relationship with the US Dollar (having slumped to nearly 69.00 in mid-2013) industry experts with Morgan Stanley have recently announced that they forecast an almost 30% depreciation in the Rupee over the next ten years.
While the outlook for India’s economy is moderately better than it has been in recent years (with a new government in power and structural reforms on the horizon) Morgan Stanley sees the Reserve Bank of India’s money-management strategy driving the Rupee to 75.00 within the decade.
The Investment Bank asserted; ‘India’s import cover deteriorated significantly following the global financial crisis, and the RBI will need gradually to build back up to 100-150 billion US Dollars of reserves to take the import cover back over 12 times. [Additionally] assuming that US CPI inflation remains close to its inflation target of 2% and India follows a disinflationary path over the next few years, the inflation differential against the US would still be equivalent to a 30-35% decline in the purchasing power parity fair value for Rupee, taking our nominal fair value estimate 10 years out to a 75-85 range.’
While this is a very long-term outlook, as an emerging-market asset the appeal of the Rupee will also be compromised if the Federal Reserve brings forward its timeline for increasing interest rates.
If this week’s US news (including today’s Markit Services PMI) adds to the case in favour of a rate hike taking place, the US Dollar to Indian Rupee (USD/INR) exchange rate may advance over the next few days.
UPDATED 16:15 GMT 28 July, 2014
US Dollar to Indian Rupee Exchange Rate Pares Gains
During North American trading the US Dollar to Indian Rupee (USD/INR) exchange rate held steady as US Markit Services PMI showed another month of strong growth.
The pairing was little-affected by another US report outlining an unexpected decline in pending home sales.
However, the ‘Greenback’ did come under pressure against several of its other currency counterparts as investors bet that the US second quarter growth data, due out later this week, won’t be as upbeat as some economists have forecast.
Indian Rupee (INR) Exchange Rates
[table width=”100%” colwidth=”50|50|50|50|50″ colalign=”left|left|left|left|left”]
Currency, ,Currency,Rate ,
Pound Sterling,
,Indian Rupee,102.0320,
US Dollar,,Indian Rupee,60.0950,
Euro,,Indian Rupee,80.7620,
Australian Dollar,,Indian Rupee,56.4520,
New Zealand Dollar,,Indian Rupee,51.3310,
[/table]
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