The USD/INR pair is not a major pair. It is however a relatively popular currency pair among traders. The rupee is the 18th most traded currency in the world.
The United States Dollar is the world’s top reserve currency. As such, it is used in most international transactions. It is the currency in which most of the world’s oil is transacted.
The USD used to be backed by gold, as late as 1971. It was then that its convertibility to precious metal was suspended. Since then, the dollar has acted as a purely fiat currency, backed by nothing but the power of the US economy and the trust of the public.
The suspension of the USD’s convertibility to gold was part of a larger set of measures introduced by the Nixon administration, known as the Nixon Shock. The move effectively rendered the Bretton Woods system inoperative, while not formally ending it.
Currently, there are some 1.7 trillion dollars in circulation world over. The majority of them (some $1.65 trillion) is in Federal Reserve notes. The rest in US notes. The Federal Reserve, the direct issuer of the USD, continues to print money however, driving the massive inflation of worldwide USD supplies and the resulting loss of value of the USD.
Most of the USD in circulation is held outside the US. Several countries use the US dollar as their official currency and scores more use it de-facto.
The Indian Rupee traces its origins all the way back to the 6th century. India was after all one of the first countries in the world to issue currency.
During the 1800s, the value of the INR went through a rather cataclysmic event, known as “the fall of the rupee”. The Rupee was historically a silver coin. During the 1800s however, massive amounts of silver were discovered in the US, as well as in several European colonies. The resulting silver boom drove down the value of the metal compared to gold, and with it, the value of the rupee.
The Indian Rupee is backed by what’s called a developing mixed economy. By nominal GDP, this economy is the 7th largest in the world.
Lately, the growth of the Indian economy has outpaced even that of China’s. Within the fold of the Indian economy, the service sector is the fastest growing one.
In theory, the USD/IND exchange rate is freely determined by the market. In practice, that is hardly the case.
The exchange rate is de-facto controlled by the RBI, which trades actively in the USD/IND market. Through this activity, the RBI effectively maintains a system of capital controls.
With that in mind, it does not make much sense to analyze factors likely to move the needle on this currency pair.
Still, overall fiscal discipline, hedging pressure in the forward markets and the Dollar index can be mentioned in this regard.
Foreign investments into Indian equities and the interest rates in India and other parts of the world should definitely be considered as well.