A) Price movement in any currency pair is an outcome of many factors, ranging from geo-political risk (like Indo-China border issue) to macro developments (fiscal deficit, trade deficit, inflation etc.) to overall risk sentiment. However, short term price movements in USDINR is mainly influenced by
Capital flows Higher the inflows, positive for USDINR
Higher the outflows, negative for USDINR
RBI Intervention RBI intervenes on both sides (buy and sell) to smoothen the extreme movements in USDINR.
Dollar Index (DXY) Stronger the DXY, stronger the dollar
Weaker the DXY, weaker the dollar
Global Risk Sentiment Higher the risk-on sentiment, positive for USDINR
Lower the risk sentiment, negative for USIDNR
Global risk sentiment – A global risk-on sentiment is normally seen as positive for emerging market currencies like USDINR etc. One can look at other emerging market currencies like USDCNY, USDKRW, USDIDR, USDZAR etc. to gauge the likely price movement in USDINR. It is similar to how equity market participants’ looks at global equity indices and tries to gauge the intra-day move in local equity market.
Trade and current account balance - A worsening trade deficit (export < import) is negative for rupee. Whereas an improving trade balance, is positive for INR. Crude oil has a large share in Indian import basket and hence its movement does impact USDINR.