USDINR - how to trade Indian Rupee
Hello, friends! In an era when the EU is bursting at the seams, and the future of the United States is foggy, developing countries such as China and India come to the fore. Well, we, as forex traders, are primarily interested in their currencies. Chinese Yuan (USDCNH) we have already considered - the time has come for the Indian Rupee.
The USDINR currency pair reflects the attitude of the American dollar to the Indian rupee. The pair has some unique features, and therefore is of considerable interest as a trading tool. We will talk about what nuances you need to know when working with this exotic tool in the review below.
The population of India is growing at a faster rate than the population of China and, in general, the growth rate of the celestial economy is already somewhat inferior to its eastern counterpart.
Considering already a quarter of the population exceeding one billion and the fourth largest economy of the world, we will note the results of active economic growth in the future. India has come a long way, having revolutionized the agrarian sector, and after seven decades of independence, the country has evolved from being chronically dependent on grain imports into a net exporter of food products.
During this time, the average life expectancy has almost doubled, the literacy rate has quadrupled, and the middle class has grown significantly. India is now home to many pharmaceutical companies, as well as information and space technology industries. All of these factors make India more important in the international arena. At the end of the 15th year, foreign companies invested about $ 26.5 billion in India, 18% higher than the previous year.
Today, India is in third place in terms of GDP, after the United States and China. The main export items are software, jewelry, agricultural products, pharmaceuticals, textiles and the automotive industry.
As a major consumer of oil, the low cost of raw materials is extremely beneficial for India. Over 10 years, imports grew by more than 50%, and the collapse in black gold prices had a positive effect on curbing inflation. Actually, India is now the fourth in terms of oil consumption, and second only to the United States, China and Japan.
Demographic analysis suggests that by 2020, India will have the youngest labor force and, accordingly, a huge consumer market. An example is China, where the average age of the population continues to grow. A favorable demographic situation and low per capita income play the role of a catalyst for rapid economic recovery.
GDP is considered the main indicator reflecting the state of the national economy. After growing by an average of 6.3% over three decades, a period of stagnation has begun in 2011. Now India is showing the strongest growth among the countries of the Asia-Pacific region, with potential 6-7% per annum, if not more, during the next five-year period.
Thus, the Indian economy is one of the fastest growing and occupies a leading position among emerging markets. In 2015, GDP grew by 7.3%, and after the 16th fiscal year is ready to grow another 7.6%. The results indicate that India is bypassing China with one of the largest economies in the world for these indicators.
However, a report by the US government suggests that annual GDP growth of more than 7% in 2015-2016, in fact, is overrated. In part, these figures are due to the fact that more recently the way of calculating macroeconomic indicators has been changed. In this regard, the accuracy of the values is doubtful, given that the growth rates of the manufacturing sector and the service sector have recently slowed down, and in the future the leading role will be played by the information technology sector, which now accounts for only a quarter of GDP.
According to various estimates, India expects a smooth decline in growth over the next decade. Given the natural cyclical nature of periods of economic recovery, we are now on the verge of a new wave of growth. This was partially due to the actions of the central bank, which led to a decrease in the interest rate and inflation, and had a positive effect on corporate incomes.
The Indian rupee appeared in 1542, and during the life of the currency experienced a large number of rethinking and changing standards. At the moment, there are notes in circulation of 5, 10, 20, 50, 100, 500 and 1000 rupees. The reserve bank is responsible for issuing the currency. What is noteworthy, at the moment, one Indian rupee is almost equal to one Russian ruble.
Central Bank Policy
The Reserve Bank of India, which serves as the Central Bank, was founded in 1934, and began its activities a year later. The bank is located in Mumbai, the financial capital of India. The bank exercises control over the issue of currency, regulates the banking system, that is, it performs the functions of the central bank.
At a meeting on October 4, it was decided to continue the policy of easing interest rates, reducing the buyback rate from 6.50% to 6.25%, thereby returning to the 2010 level. This was the first decision taken by the new monetary policy committee led by the new leader, Urgit Patel, who took office in September this year.
The Reserve Bank of India has been pursuing a policy of cutting rates since January 2015. Intentional easing contributed to a significant depreciation of the national currency against the dollar. Currency devaluation, in turn, provoked an outflow of capital from the country. At the moment, the central bank has to find a balance between stimulating economic growth and reducing pressure on the national currency.
Actually, the Central Bank reforms were introduced in order to make the voting process more transparent, taking into account the opinions of all six members of the committee during the voting process. Previously, the decisive vote was for the head of the Central Bank.
The fact of lowering rates is aimed at approaching the target inflation rate of 5%. The decision to mitigate would not be so convincing if not for the recent measures that have contributed to reducing food inflation.
Most likely, the reserve bank will adhere to a policy of further rate cuts.
In any case, the future of interest rates now depends on the decision of the committee, and not directly on the central bank. Actually, only the control of consumer inflation remained from the main tasks of the Central Bank. Distribution of tasks in this way is obliged to create a more stable monetary policy, counting on the adoption of more predictable and deliberate decisions.
Fight against corruption
On November 9, the Prime Minister announced the withdrawal from circulation of all denominations of 500 and 1,000 rupees. The authorities announced the deadline until the end of this year, when all old banknotes should be exchanged for banknotes of a lower denomination or new ones, with a face value of 500 and 2,000 rupees. This measure is aimed, first of all, at solving corruption problems, since the exchange will be possible only if there is declared income - at the reception points they will require an identity card and a certificate of payment of taxes.
Thus, a substantial part of the cash turnover is subject to replacement. To be precise, these denominations account for 24.4% of the total turnover of the country and 86.4% of the total money supply. The measures taken are likely to deprive part of the profit of both ordinary citizens and private business for several months in advance. In the long run, the measures taken must help solve the problems of corruption and the growing black market.
Currency pair characteristics
At the moment, USDINR has slowed somewhat. But, if you look at the historical chart, the global trend indicates strictly growth.
The chart itself is very similar to the chart of the dollar to ruble (USDRUB). Here we have a very similar course, the same intermittent movements of quotes and a general global orientation. With some caveats, the same trading strategies can be applied on both pairs.
At the moment, from large forex brokers only Instaforex offers USDINR trading.
Swaps are -40 points. The pair is quoted accurate to the third digit, while the value of the item is 10 times lower than EURUSD. That is, the swaps, although negative, are small enough not to draw attention to them. Trading time is limited. The trading session starts at Instaforex in rupee at 7:35 and ends at 15:30 Moscow time.
The currency pair has a comparable level of volatility with EURUSD, but is almost two times lower than USDJPY. For a rupee, the average volatility during the week is slightly more than 6%, while the yen shows 11%. Despite the relative calm, the couple reacts sharply to news events, and due to a lack of liquidity, this can cause strong gaps in quotes.
Trading activity is evenly distributed between the Asian and European sessions. At the same time, throughout Europe, trade is more consistent, but the peak of volatility is in Asia.
In general, USDJPY behaves similarly. Similarly, towards the end of the American session, a recession begins and trading activity drops. Then, from about 9 pm to 3 am, a very sluggish trade takes place in Moscow.
Weekly volatility is growing from Monday to Friday. Thus, the largest movements occur in the second half of the week - the pair needs time to “accelerate”.
Let's try to analyze the seasonal volatility of a currency pair over the past 2 years. If USDJPY is more active in the spring, then the rupee, as we see, shows the greatest activity in the summer, with a gradual decrease in the fall season. For the rest, the pair behaves quite measuredly, without showing any abnormal jumps.
Currencies in emerging markets have one interesting feature, and not all traders take this into account. The global financial market is cyclical, and from time to time even leading countries experience the effects of a recession. However, over time, the economy is again recovering, and the relative value of leading currencies is growing. At the same time, the opposite is true for exotic pairs, and the rupee is already pulling the dollar down, experiencing the effects of a global economic recovery.
Given that the currency pair is quite distinctive, and even has a significant resistance to the dollar, USDINR is well suited to diversify risks. By adding USDINR to your trading system portfolio, along with other exotic pairs, you can achieve a smoother profit growth and reduce equity drawdowns.
The pair has a fairly strong inverse correlation with the Indian stock exchange index - NIFTY 50. That is, the stock market is falling, the currency pair is growing, the market is growing - USDINR is falling.
It is also worth noting the pair's correlation with precious metals, in particular, USDINR has a strong inverse relationship with gold (XAUUSD). You can also reduce trading risks while simultaneously tearing off one-way positions on both instruments. You can use the pair trading strategy, opening two positions in different directions while expanding the spread.
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At 67, we have a strong support level, which the couple may want to test before continuing to grow. From it we enter only to buy.
In case of continued growth, you should focus on the boundaries of the long-term channel, from which the price already exited in the spring of 2013, but returned a year later.
USDINR is quite vulnerable to news events. At the same time, the pair is most affected by the same news as the US dollar. Therefore, in trade, we take into account all the red news regarding political races, Fed intentions and important economic reports.
When trading, try to exclude sell positions, and track only possible purchases. Be sure to take into account long-term channels and key levels on daily charts. Also, it is worth considering that the gaps for this pair are quite normal, and they are not always closed.
USDINR is now an absolutely original tool, as can be judged by the moderate reaction of the couple to the US presidential election. Having the strong potential of the Indian economy, the pair will fit perfectly into the finished diversification portfolio. In general, USDINR is more suitable for positional trading, given stable trends and the formation of long-term channels. The same applies to correlation with metals, where there is a long-term relationship.