- Indian Rupee trades weaker on the rebound in oil prices, USD demand.
- Global uncertainties will have a limited impact on the Indian economy.
- Market players will monitor the FOMC Meeting Minutes on Tuesday for fresh impetus.
Indian Rupee (INR) sticks to its modest intraday losses on Monday due to the recovery in oil prices and US demand from the local companies. Last week, S&P Global Ratings published a report indicating that slower external demand and sluggish global growth will impact economic activity and may contribute to further inflation. Nonetheless, the Indian economy will be marginally less affected by global uncertainties due to the country being domestically oriented.
Investors will focus on the Federal Open Market Committee (FOMC) Meeting Minutes on Tuesday. The report could provide some hints about future policy rate direction and inflation improvement. Market participants raised bets that the Federal Reserve (Fed) is done with the hiking cycle and priced in rate cuts of 100 basis points (bps) in the first half of 2024.
Daily Digest Market Movers: Indian Rupee faces limited risk from global factors
- The momentum of change in India’s GDP is sequentially expected to be higher in October-December on the back of “ebullient” festival demand, according to a report in the Reserve Bank of India’s (RBI) monthly bulletin.
- According to the RBI, the Indian economy will see a GDP growth rate of 6.5% in 2023-24.
- The central bank also stated India’s growth remains dependent on domestic demand, which provides a cushion against external shocks.
- RBI is expected to maintain the policy rate at its next monetary policy meeting, which is scheduled for December 6-8.
- India’s headline retail price inflation for October fell to 4.9% from 5% the previous month, the lowest reading in four months.
- India’s Wholesale Price Index (WPI) inflation arrived at -0.52% from -0.26%,previously, worse than the market consensus of -0.20%.
- The Consumer Price Index (CPI) in India grew by 4.87% year on year in October, compared to 5.02% the previous month, above the market estimate of 4.80%.
- US Housing Starts climbed by 1.9% MoM to 1.372M, better than the expectation of 1.350M. Building Permits rose by 1.1% to 1.487M, above the estimation of 1.450M.
- Federal Reserve (Fed) officials remarked on the prospects for monetary policy last week and were consistent in their tone.
- Boston Fed President Susan Collins said the central bank might bring down inflation without harming the labor market by being “patient” with future interest rate hikes.
- Fed President Austan Goolsbee stated that inflation is on pace to meet the Fed’s target as long as house price pressures decrease.
Technical Analysis: The Indian Rupee keeps the bearish outlook unchanged
The Indian Rupee trades softer on the day. The USD/INR pair has traded within a wider range of 82.80–83.35 since September. From a technical perspective, the USD/INR maintains a bullish vibe as the pair holds above the key 100-day Exponential Moving Average (EMA) on the daily chart. This notion is backed by the 14-day Relative Strength Index (RSI) holding above the 50.0 midline.
The first USD/INR upside barrier is near the upper boundary of the trading range of 83.35. A decisive break above 83.35 could open the door to challenge the year-to-date (YTD) high of 83.47. Further north, the additional upside filter to watch is a psychological round figure at 84.00.
On the other hand, the confluence of the lower limit of the trading range and a low of September 12 at 82.80 act as an initial support level for the pair. If the sellers drag prices below 82.80, the next contention will emerge at a low of August 11 at 82.60, followed by a low of August 24 at 82.37.
US Dollar price in the last 7 days
The table below shows the percentage change of US Dollar (USD) against listed major currencies in the last 7 days. US Dollar was the strongest against the Canadian Dollar.
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 Euro from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent EUR (base)/JPY (quote).
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.