Indian rupee has risen by 1 paise to 65.19 level compared to US benchmark dollar index. Today is an important day as the Fed will announce an interest-rate decision, which will affect the future movement of the USD/INR. USD to INR weakened by 9 paisa yesterday due to concerns over a widening current account deficit.
Further, the USD’s weakness against the currencies in global market along with the selling of the USD by exporters as well as banks has supported the rupee. The strong positive opening of the domestic equity market has also influenced the currency movement.
The Fed is expected to raise interest-rate by 25 bps. Probably the decision was already reflected by U.S dollar index daily chart as there was positive closing of the market.
The bullish candlestick formed in the previous day, shows that the US market is in uptrend. Therefore the index might continue to be uptrend today even if the rate increase is followed by a cautious comment.
USD to INR Chart Analysis
The above chart shows that the USD to INR rose to level of 65.326 on 19th March and then fell to 65.251 today, as the Fed is expected to raise the interest rate, and therefore the USD will become stronger and Indian Rupee will decline further
CAD Announcement by RBI
Weakening of Indian rupee against the US dollar, and the continuous foreign fund outflow led to rise in the current account deficit for the December quarter. As per Reserve Bank of India (RBI), the current account deficit (CAD) has risen to 2% of the GDP at $13.5 billion in the December quarter, which is up from $8 billion in the year-ago period, driven by higher trade deficit ($44.1 billion) brought about due to a larger increase in merchandise imports compared to the exports.
Further, as per the RBI, in the financial account, in Q3 of 2017-18, the net foreign direct investment is at $4.3 billion, which is lower than $ 9.7 billion in Q3 of 2016-17.
Moreover, in Q3 of 2017-18, the portfolio investment showed the net inflow of $5.3 billions against an outflow of $11.3 billion in Q3 last year, on the back of net purchases in both the debt and equity markets.
Impact of Fed Interest Rate, Political issues on Indian Rupee
The market is also looking forward to find whether Fed policy makers will forecast four rate hikes this year instead of three they had projected at December meeting.
The prospects of more rate hikes generally support the currency as higher interest rates tend to attract funds. However, investors are looking forward to the recent US political decisions undertaken like US President Donald Trump’s tariff and other protectionist policies, which could disrupt the US and global economy.
Overall, Indian rupee will fall if US Fed hikes the interest rate. The raising of interest rate means that US economy is getting stronger and the foreign investors will withdraw their investments from India and will invest in US.
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