Forex News
- Australian Dollar weakens after S&P Global Purchasing Managers’ Index shows slowing growth in February.
- Australia’s Composite PMI fell to 52.0; Services to 52.2; Manufacturing to 51.5, all slower but still expanding.
- The US Dollar gains after Initial Jobless Claims fell to 206K, below forecasts.
Australian Dollar (AUD) holds losses against the US Dollar (USD) during the Asian hours on Friday. The AUD/USD pair trades around 0.7040 at the time of writing after giving up recent gains from the previous session.
The Australian Dollar (AUD) comes under pressure after S&P Global’s preliminary February Purchasing Managers’ Index (PMI) data showed a broad-based cooling in activity, indicating slower growth while inflation pressures remain sticky.
Australia’s Composite PMI slipped to 52.0 in February from 55.7 in January, marking a seventeenth consecutive month of expansion but at a more moderate pace. The Services PMI eased to 52.2 from 56.3, while the Manufacturing PMI edged down to 51.5 from 52.3, both signaling continued growth, albeit slower than at the start of 2026.
The AUD/USD pair also remains under pressure as the US Dollar (USD) draws support after the US Department of Labor (DOL) reported that Initial Jobless Claims declined to 206K for the week ending February 14, down from the prior week’s revised 229K and below the 225K consensus forecast. Traders await Friday’s preliminary US Q4 Gross Domestic Product (GDP) and Personal Consumption Expenditures (PCE) data for fresh direction.
The Federal Open Market Committee (FOMC) Minutes from the January meeting reignited speculation about potential rate hikes should inflation remain persistent. While most policymakers supported keeping rates unchanged, only a few favored a cut, and officials indicated they would consider easing if inflation moderates as anticipated.
Australian Dollar FAQs
One of the most significant factors for the Australian Dollar (AUD) is the level of interest rates set by the Reserve Bank of Australia (RBA). Because Australia is a resource-rich country another key driver is the price of its biggest export, Iron Ore. The health of the Chinese economy, its largest trading partner, is a factor, as well as inflation in Australia, its growth rate and Trade Balance. Market sentiment – whether investors are taking on more risky assets (risk-on) or seeking safe-havens (risk-off) – is also a factor, with risk-on positive for AUD.
The Reserve Bank of Australia (RBA) influences the Australian Dollar (AUD) by setting the level of interest rates that Australian banks can lend to each other. This influences the level of interest rates in the economy as a whole. The main goal of the RBA is to maintain a stable inflation rate of 2-3% by adjusting interest rates up or down. Relatively high interest rates compared to other major central banks support the AUD, and the opposite for relatively low. The RBA can also use quantitative easing and tightening to influence credit conditions, with the former AUD-negative and the latter AUD-positive.
China is Australia’s largest trading partner so the health of the Chinese economy is a major influence on the value of the Australian Dollar (AUD). When the Chinese economy is doing well it purchases more raw materials, goods and services from Australia, lifting demand for the AUD, and pushing up its value. The opposite is the case when the Chinese economy is not growing as fast as expected. Positive or negative surprises in Chinese growth data, therefore, often have a direct impact on the Australian Dollar and its pairs.
Iron Ore is Australia’s largest export, accounting for $118 billion a year according to data from 2021, with China as its primary destination. The price of Iron Ore, therefore, can be a driver of the Australian Dollar. Generally, if the price of Iron Ore rises, AUD also goes up, as aggregate demand for the currency increases. The opposite is the case if the price of Iron Ore falls. Higher Iron Ore prices also tend to result in a greater likelihood of a positive Trade Balance for Australia, which is also positive of the AUD.
The Trade Balance, which is the difference between what a country earns from its exports versus what it pays for its imports, is another factor that can influence the value of the Australian Dollar. If Australia produces highly sought after exports, then its currency will gain in value purely from the surplus demand created from foreign buyers seeking to purchase its exports versus what it spends to purchase imports. Therefore, a positive net Trade Balance strengthens the AUD, with the opposite effect if the Trade Balance is negative.
- USD/CAD edges lower to around 1.3695 in Friday’s early European session.
- A rise in crude oil prices amid the US-Iran tensions supports the commodity-linked Canadian Dollar.
- Traders await key US inflation data to assess the Fed's monetary policy moving forward.
The USD/CAD pair trades in negative territory near 1.3695 during the early European session on Friday. The Canadian Dollar (CAD) strengthens against the Greenback amid higher crude oil prices. Traders await the Canadian Retail Sales data, along with the advance US Q4 Gross Domestic Product (GDP) report and the US Personal Consumption Expenditures (PCE) Price Index data.
Persistent geopolitical risks boost crude oil prices and provide some support to the commodity-linked Loonie. US President Donald Trump said on Thursday that Iran had 10 to 15 days at most to strike a deal over its nuclear program, per Bloomberg. Trump added that "really bad things will happen" if no deal is reached with Iran and the US will get a deal one way or the other. It is worth noting that Canada is a major oil-exporting country, and high crude oil prices generally have a positive impact on the CAD.
On the other hand, stronger-than-expected US economic data and a more hawkish Federal Reserve (Fed) outlook could underpin the US Dollar (USD) against the CAD. The US Initial Jobless Claims declined to 206,000 for the week ending February 14, according to the US Department of Labor (DOL) on Thursday. This reading came in below the market consensus of 225,000 and down from the previous week’s revised 229,000.
The US Personal Consumption Expenditure (PCE) data, the Fed's preferred inflation gauge, for December will be published later on Friday for clues on US monetary policy. Also, the preliminary reading of the Gross Domestic Product (GDP) for the fourth quarter will be released. A surprise downside to the reports could drag the USD lower in the near term.
Canadian Dollar FAQs
The key factors driving the Canadian Dollar (CAD) are the level of interest rates set by the Bank of Canada (BoC), the price of Oil, Canada’s largest export, the health of its economy, inflation and the Trade Balance, which is the difference between the value of Canada’s exports versus its imports. Other factors include market sentiment – whether investors are taking on more risky assets (risk-on) or seeking safe-havens (risk-off) – with risk-on being CAD-positive. As its largest trading partner, the health of the US economy is also a key factor influencing the Canadian Dollar.
The Bank of Canada (BoC) has a significant influence on the Canadian Dollar by setting the level of interest rates that banks can lend to one another. This influences the level of interest rates for everyone. The main goal of the BoC is to maintain inflation at 1-3% by adjusting interest rates up or down. Relatively higher interest rates tend to be positive for the CAD. The Bank of Canada can also use quantitative easing and tightening to influence credit conditions, with the former CAD-negative and the latter CAD-positive.
The price of Oil is a key factor impacting the value of the Canadian Dollar. Petroleum is Canada’s biggest export, so Oil price tends to have an immediate impact on the CAD value. Generally, if Oil price rises CAD also goes up, as aggregate demand for the currency increases. The opposite is the case if the price of Oil falls. Higher Oil prices also tend to result in a greater likelihood of a positive Trade Balance, which is also supportive of the CAD.
While inflation had always traditionally been thought of as a negative factor for a currency since it lowers the value of money, the opposite has actually been the case in modern times with the relaxation of cross-border capital controls. Higher inflation tends to lead central banks to put up interest rates which attracts more capital inflows from global investors seeking a lucrative place to keep their money. This increases demand for the local currency, which in Canada’s case is the Canadian Dollar.
Macroeconomic data releases gauge the health of the economy and can have an impact on the Canadian Dollar. Indicators such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can all influence the direction of the CAD. A strong economy is good for the Canadian Dollar. Not only does it attract more foreign investment but it may encourage the Bank of Canada to put up interest rates, leading to a stronger currency. If economic data is weak, however, the CAD is likely to fall.
- Silver price wobbles around $78.40 while investors await the preliminary US Q4 GDP data.
- The Fed is expected to deliver two interest rate cuts this year.
- US-Iran tensions continue to support Silver’s safe-haven appeal.
Silver price (XAG/USD) trades cautiously around $78.40 during the late Asian trading session on Friday. The white metal consolidates ahead of the preliminary United States (US) Q4 Gross Domestic Product (GDP) data, which will be published at 13:30 GMT.
The US Bureau of Economic Analysis (BEA) is expected to show that the economy rose at an annualized pace of 3%, slower than 4.4% growth seen in the third quarter of 2025. Signs of slowing US GDP growth would prompt expectations of more interest rate cuts by the Federal Reserve (Fed) in the near term. Silver tends to perform better in a low-interest-rate environment.
Currently, traders have priced in two interest rate cuts by the Fed through 2026, according to the CME FedWatch tool.
In Friday’s session, investors will also focus on private sector Purchasing Managers’ Index (PMI) data for February across the globe. The US S&P Global Composite PMI is expected to come in higher than the previous reading of 53.0.
On the global front, tensions between the United States (US) and Iran are expected to keep Silver’s safe-haven appeal upbeat. According to a report from the Wall Street Journal (WSJ), President Donald Trump is weighing a limited military strike on Iran to pressure the economy to agree to a nuclear deal.
Silver technical analysis
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In the daily chart, XAG/USD trades flat at around $78.44. Price holds beneath a declining 20-day Exponential Moving Average (EMA) at $81.93, maintaining downside pressure. The 20-day EMA has rolled over in recent sessions and continues to cap recovery attempts.
The 14-day Relative Strength Index (RSI) at 46 (neutral-to-bearish) keeps momentum below the midline.
Near term, sellers would retain control while the metal remains under the falling average, keeping the room open for a downside move towards the February 6 low of $64.08. On the contrary, a daily close above the 20-EMA could shift risk toward stabilization. Until momentum reclaims the 50 line on RSI, rebounds could lack traction, whereas an RSI break above 50 would improve the recovery outlook.
(The technical analysis of this story was written with the help of an AI tool.)
Silver FAQs
Silver is a precious metal highly traded among investors. It has been historically used as a store of value and a medium of exchange. Although less popular than Gold, traders may turn to Silver to diversify their investment portfolio, for its intrinsic value or as a potential hedge during high-inflation periods. Investors can buy physical Silver, in coins or in bars, or trade it through vehicles such as Exchange Traded Funds, which track its price on international markets.
Silver prices can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can make Silver price escalate due to its safe-haven status, although to a lesser extent than Gold's. As a yieldless asset, Silver tends to rise with lower interest rates. Its moves also depend on how the US Dollar (USD) behaves as the asset is priced in dollars (XAG/USD). A strong Dollar tends to keep the price of Silver at bay, whereas a weaker Dollar is likely to propel prices up. Other factors such as investment demand, mining supply – Silver is much more abundant than Gold – and recycling rates can also affect prices.
Silver is widely used in industry, particularly in sectors such as electronics or solar energy, as it has one of the highest electric conductivity of all metals – more than Copper and Gold. A surge in demand can increase prices, while a decline tends to lower them. Dynamics in the US, Chinese and Indian economies can also contribute to price swings: for the US and particularly China, their big industrial sectors use Silver in various processes; in India, consumers’ demand for the precious metal for jewellery also plays a key role in setting prices.
Silver prices tend to follow Gold's moves. When Gold prices rise, Silver typically follows suit, as their status as safe-haven assets is similar. The Gold/Silver ratio, which shows the number of ounces of Silver needed to equal the value of one ounce of Gold, may help to determine the relative valuation between both metals. Some investors may consider a high ratio as an indicator that Silver is undervalued, or Gold is overvalued. On the contrary, a low ratio might suggest that Gold is undervalued relative to Silver.
Japan Prime Minister Sanae Takaichi said on Friday that necessary spending will be funded as much as possible through the initial budget. She further stated that she will steadily lower the debt-to-GDP ratio and restore fiscal sustainability.
Key quotes
Necessary spending will be funded as much as possible through initial budget.
Will push bold investment through multi year budgets and long term funds.
Won’t pursue reckless fiscal policy that undermines market confidence.
Will steadily lower Debt to GDP ratio and restore fiscal sustainability.
Will maintain market trust and will clarify concrete fiscal indicators.
Fiscal policy that sufficiently considers discipline defines Takaichi cabinet’s ‘responsible, proactive fiscal policy’.
Will seek early passage by end of fiscal year of key bills including tax reform legislation for FY2026/27.
Market reaction
At the time of writing, the USD/JPY pair is trading 0.10% higher on the day at 155.25.
Japanese Yen FAQs
The Japanese Yen (JPY) is one of the world’s most traded currencies. Its value is broadly determined by the performance of the Japanese economy, but more specifically by the Bank of Japan’s policy, the differential between Japanese and US bond yields, or risk sentiment among traders, among other factors.
One of the Bank of Japan’s mandates is currency control, so its moves are key for the Yen. The BoJ has directly intervened in currency markets sometimes, generally to lower the value of the Yen, although it refrains from doing it often due to political concerns of its main trading partners. The BoJ ultra-loose monetary policy between 2013 and 2024 caused the Yen to depreciate against its main currency peers due to an increasing policy divergence between the Bank of Japan and other main central banks. More recently, the gradually unwinding of this ultra-loose policy has given some support to the Yen.
Over the last decade, the BoJ’s stance of sticking to ultra-loose monetary policy has led to a widening policy divergence with other central banks, particularly with the US Federal Reserve. This supported a widening of the differential between the 10-year US and Japanese bonds, which favored the US Dollar against the Japanese Yen. The BoJ decision in 2024 to gradually abandon the ultra-loose policy, coupled with interest-rate cuts in other major central banks, is narrowing this differential.
The Japanese Yen is often seen as a safe-haven investment. This means that in times of market stress, investors are more likely to put their money in the Japanese currency due to its supposed reliability and stability. Turbulent times are likely to strengthen the Yen’s value against other currencies seen as more risky to invest in.
- Gold bulls turn cautious ahead of the release of the US Q4 GDP and the PCE Price Index.
- Receding Fed rate cut bets continue to underpin the USD and cap the precious metal.
- Rising geopolitical tensions act as a tailwind for the commodity ahead of the US data.
Gold (XAU/USD) extends its sideways consolidative price move around the $5,000 psychological mark through the Asian session on Friday as traders seem reluctant to place aggressive directional bets ahead of the key US macro releases. The Advance Q4 GDP report and the Personal Consumption Expenditures (PCE) Price Index will be published later today and will play a key role in influencing expectations about the US Federal Reserve's (Fed) rate cut path. This, in turn, will drive the US Dollar (USD) and provide some meaningful impetus to the non-yielding yellow metal.
Meanwhile, Minutes from the January FOMC monetary policy meeting showed that the central bank is in no hurry to cut interest rates further, while officials also discussed the possibility of raising rates if inflation does not cool. Moreover, the incoming data signaled a remarkably resilient US labor market, which, along with hawkish comments from Fed officials, forced investors to pare their bets for more aggressive policy easing. The market repricing of Fed rate cuts, in turn, pushed the USD to its highest level since January 23 and turned out to be a key factor acting as a headwind for the Gold, though the downside seems limited amid rising geopolitical tensions.
US President Donald Trump warned Iran on Thursday that it must make a deal over its nuclear program, or really bad things will happen, and set a deadline of 10 to 15 days. In response, Iran told UN Secretary-General, Antonio Guterres, that it does not seek war but will not tolerate military aggression. Iran added that all bases and assets of a hostile force in the region would be legitimate targets if attacked. This raises the risk of a military confrontation and a broader conflict in the Middle East, which might continue to underpin the safe-haven Gold. The mixed fundamental backdrop, in turn, warrants caution before placing aggressive directional bets.
XAU/USD 1-hour chart
Gold struggles to build on this week's breakout above the 100-hour SMA
The XAU/USD pair on Thursday defended and bounced off the 100-hour Simple Moving Average (SMA) resistance-turned-support. That said, the lack of follow-through buying and the range-bound price action witnessed over the past two days or so warrants caution for bullish traders. The SMA currently sits at $4,965.41, offering nearby dynamic support.
Meanwhile, the Moving Average Convergence Divergence (MACD) line remains below the Signal line and below zero, while the negative histogram contracts, hinting at fading bearish pressure. The Relative Strength Index (RSI) stands at 53 (neutral), aligning with a tentative recovery tone.
Holding above the rising 100-period SMA would keep intraday risks skewed to the upside, and a MACD bull crossover with a drive back above the zero line would strengthen the case for continuation. Conversely, a loss of momentum on MACD alongside an RSI rollover from the mid-50s would leave the recovery vulnerable and could see price retest the moving average as support before direction reasserts.
(The technical analysis of this story was written with the help of an AI tool.)
US Dollar Price This week
The table below shows the percentage change of US Dollar (USD) against listed major currencies this week. US Dollar was the strongest against the Japanese Yen.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 1.03% | 1.55% | 1.71% | 0.61% | 0.53% | 1.38% | 0.97% | |
| EUR | -1.03% | 0.52% | 0.68% | -0.42% | -0.51% | 0.35% | -0.04% | |
| GBP | -1.55% | -0.52% | -0.10% | -0.93% | -1.02% | -0.17% | -0.55% | |
| JPY | -1.71% | -0.68% | 0.10% | -1.07% | -1.13% | -0.31% | -0.66% | |
| CAD | -0.61% | 0.42% | 0.93% | 1.07% | -0.12% | 0.77% | 0.38% | |
| AUD | -0.53% | 0.51% | 1.02% | 1.13% | 0.12% | 0.87% | 0.49% | |
| NZD | -1.38% | -0.35% | 0.17% | 0.31% | -0.77% | -0.87% | -0.39% | |
| CHF | -0.97% | 0.04% | 0.55% | 0.66% | -0.38% | -0.49% | 0.39% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the US Dollar from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent USD (base)/JPY (quote).
- GBP/JPY falls as BoE March rate cut expectations weigh on Pound Sterling.
- BoE’s Catherine Mann praised January CPI, though core inflation stayed slightly elevated.
- Japan’s CPI rose 1.5% YoY; core CPI increased 2.0%, both slowing from prior readings.
GBP/JPY loses ground for the second successive session, trading around 208.60 during the Asian hours on Friday. The currency cross remains under pressure as the Pound Sterling (GBP) weakens ahead of the United Kingdom (UK) Retail Sales and S&P Global Purchasing Managers’ Index (PMI) releases due later in the day.
The British Pound is weighed down by rising expectations that the Bank of England (BoE) will cut interest rates at its March meeting. These bets strengthened after a soft UK labor report showed the Unemployment Rate climbing to 5.2% in the three months to December, alongside easing wage growth.
UK inflation also cooled to its lowest level in nearly a year, reinforcing dovish BoE expectations. BoE Monetary Policy Committee (MPC) member Catherine Mann welcomed January’s Consumer Price Index (CPI) data, noting that headline inflation was encouraging, though core inflation remained slightly above desired levels.
The downside of the GBP/JPY cross could be restrained as the Japanese Yen (JPY) softens after January’s decline in both headline and core inflation, following government efforts to curb living costs.
Japan’s National Consumer Price Index (CPI) increased 1.5% year-over-year (YoY) in January, easing from 2.1% previously. Core CPI, which excludes fresh food, rose 2.0% YoY, down from 2.4% and matching market expectations. Meanwhile, CPI excluding fresh food and energy climbed 2.6% YoY, compared with 2.9% in the prior month.
Pound Sterling Price Today
The table below shows the percentage change of British Pound (GBP) against listed major currencies today. British Pound was the weakest against the Canadian Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.14% | 0.14% | 0.08% | -0.01% | 0.31% | 0.42% | 0.07% | |
| EUR | -0.14% | 0.00% | -0.05% | -0.16% | 0.18% | 0.28% | -0.07% | |
| GBP | -0.14% | -0.00% | -0.04% | -0.16% | 0.17% | 0.27% | -0.07% | |
| JPY | -0.08% | 0.05% | 0.04% | -0.10% | 0.22% | 0.32% | -0.02% | |
| CAD | 0.01% | 0.16% | 0.16% | 0.10% | 0.32% | 0.42% | 0.08% | |
| AUD | -0.31% | -0.18% | -0.17% | -0.22% | -0.32% | 0.10% | -0.25% | |
| NZD | -0.42% | -0.28% | -0.27% | -0.32% | -0.42% | -0.10% | -0.35% | |
| CHF | -0.07% | 0.07% | 0.07% | 0.02% | -0.08% | 0.25% | 0.35% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the British Pound from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent GBP (base)/USD (quote).
- The Indian Rupee gaps down to near 91.20 against the US Dollar after a holiday on Thursday.
- Rising oil prices due to US-Iran tensions has weighed on the Indian Rupee.
- Investors await India-US private sector PMI data for February.
The Indian Rupee (INR) gaps down at open against the US Dollar (USD) on Friday after a holiday on Thursday. The USD/INR pair jumps to near 91.20 in the opening trade as the Indian Rupee weakens on rising Oil price and the absence of strong buying interest by foreign investors in the Indian stock market.
Oil prices have risen significantly following threats of United States (US) military action against Iran. According to a report from the Wall Street Journal (WSJ), President Donald Trump is weighing a limited military strike on Iran to pressure Tehran to agree to a nuclear deal.
Currencies from economies that rely on imports of oil to fulfill their energy needs tend to underperform in a high oil price environment.
There seems to be an absence of enthusiasm in Foreign Institutional Investors (FIIs) for increasing their stake in the Indian equity market despite the confirmation of a trade deal between the United States (US) and India. So far in February, FIIs have turned out to be net sellers and have pared their stake worth Rs. 1,076.63 crore, according to data from NSE, even as the trade deal was announced on February 2. On Thursday, overseas investors offloaded their stake worth Rs. 880.49 crore.
Meanwhile, a report from Reuters has shown that traders expect the Reserve Bank of India (RBI) to have intervened in the local and spot markets to support the Indian Rupee.
In addition to weakness in the Indian Rupee, the upbeat US Dollar is also strengthening the pair. During the press time, the US Dollar Index (DXY), which gauges the Greenback’s value against six major currencies, trades firmly near the fresh three-week high of 98.00 posted on Thursday.
The US Dollar has been outperforming its peers since the release of the Federal Open Market Committee (FOMC) Minutes of the January policy meeting on Wednesday, which showed that officials are not in a hurry to cut interest rates as inflation remains persistently above the Federal Reserve’s (Fed) 2% target. In addition to slightly hawkish FOMC Minutes, risk-off market sentiment due to US-Iran tensions has also improved the US Dollar’s appeal.
During the day, investors will focus on the US preliminary Q4 Gross Domestic Product (GDP) and the India-US private sector Purchasing Managers’ Index (PMI) data for February.
The US Bureau of Economic Analysis (BEA) is expected to show that the economy rose at an annualized pace of 3%, slower than 4.4% growth seen in the third quarter of 2025.
Technical Analysis: USD/INR jumps above 20-day EMA
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USD/INR trades sharply higher at around 91.10 as of writing. Price holds above the 20-day Exponential Moving Average (EMA) at 90.89. The average has turned higher, indicating the pullback has eased.
The 14-day Relative Strength Index (RSI) at 54.99 (neutral) is rising through the midline, backing improving bullish momentum.
The short-term bias improves as the 20-day EMA’s slope recovers, helping to cap dips and support higher lows. On the upside, the price could advance toward the January 28 low of 91.66 if it continues to hold the 20-day EMA. Looking down, the February 3 low of 90.15 will act as key support.
(The technical analysis of this story was written with the help of an AI tool.)
Indian Rupee FAQs
The Indian Rupee (INR) is one of the most sensitive currencies to external factors. The price of Crude Oil (the country is highly dependent on imported Oil), the value of the US Dollar – most trade is conducted in USD – and the level of foreign investment, are all influential. Direct intervention by the Reserve Bank of India (RBI) in FX markets to keep the exchange rate stable, as well as the level of interest rates set by the RBI, are further major influencing factors on the Rupee.
The Reserve Bank of India (RBI) actively intervenes in forex markets to maintain a stable exchange rate, to help facilitate trade. In addition, the RBI tries to maintain the inflation rate at its 4% target by adjusting interest rates. Higher interest rates usually strengthen the Rupee. This is due to the role of the ‘carry trade’ in which investors borrow in countries with lower interest rates so as to place their money in countries’ offering relatively higher interest rates and profit from the difference.
Macroeconomic factors that influence the value of the Rupee include inflation, interest rates, the economic growth rate (GDP), the balance of trade, and inflows from foreign investment. A higher growth rate can lead to more overseas investment, pushing up demand for the Rupee. A less negative balance of trade will eventually lead to a stronger Rupee. Higher interest rates, especially real rates (interest rates less inflation) are also positive for the Rupee. A risk-on environment can lead to greater inflows of Foreign Direct and Indirect Investment (FDI and FII), which also benefit the Rupee.
Higher inflation, particularly, if it is comparatively higher than India’s peers, is generally negative for the currency as it reflects devaluation through oversupply. Inflation also increases the cost of exports, leading to more Rupees being sold to purchase foreign imports, which is Rupee-negative. At the same time, higher inflation usually leads to the Reserve Bank of India (RBI) raising interest rates and this can be positive for the Rupee, due to increased demand from international investors. The opposite effect is true of lower inflation.
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