The USD to INR exchange rate has continued its steady climb, rising to 91 after recovering from last year’s low of 83.77 in May.
The move higher gathered pace this week after fresh economic data pointed to stronger business activity in India. Rising bond yields have also supported the currency trend.
Data released by HSBC showed that India’s manufacturing sector improved in February. The manufacturing PMI increased from 55.4 in January to 57.5. A reading above 50 signals expansion.
The services sector also strengthened. The services PMI rose to 58.4, while the composite PMI reached 59.3. That is the highest level in several months and suggests broad based growth across the economy.
At the same time, Indian government bond yields have climbed. The 10 year yield rose to 6.73%, its highest level since February 12. The 30 year yield moved to 7.43% and is approaching its year to date high of 7.515%.
Bond yields have been pushed higher by rising crude oil prices. Markets are reacting to renewed geopolitical tensions after US President Donald Trump warned Iran to reach a deal within 15 days. Investors fear that any US military action could disrupt oil supplies.
India imports most of its crude oil, so higher energy prices can quickly feed into inflation and production costs. That creates pressure on both manufacturers and consumers.
Recent inflation data shows prices have started moving up again. Headline Consumer Price Index inflation rose to 2.75% in January from 1.33% in December. It has climbed significantly from last year’s low of 0.25%, although it remains within the 2% to 4% tolerance band set by the Reserve Bank of India.
The RBI has supported growth by cutting interest rates from 6.5% last year to 5.25%. Lower borrowing costs have helped stabilise demand and support economic momentum.
Investors are also watching the impact of a recent agreement between India and the United States, which could further strengthen trade and growth prospects.
Looking ahead, the next major trigger for the USD INR pair will be US economic data. Markets are waiting for updated US GDP and inflation figures. Economists expect the US economy grew by 3% in the fourth quarter, down from 4.4% in the third quarter.
From a technical perspective, the pair has rebounded after briefly pulling back from its year to date high of 92.23 to around 90.05. The rate is trading above its 50 day and 100 day exponential moving averages, a sign of underlying strength.
Momentum indicators such as the Relative Strength Index and MACD are trending higher. Analysts say that if the pair breaks above 92.23, it could target 93.75 next.
For now, strong domestic data and global energy concerns are keeping the USD INR exchange rate on an upward path.
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