USD/INR rebounds ahead of US PPI data
|- Indian Rupee trades softer on the renewed USD demand on Friday.
- RBI's Das said persistent food price shocks and heightened geopolitical tensions are hindering policymakers' efforts to curb inflation.
- Investors will monitor the US January Producer Price Index (PPI) on Friday.
The Indian rupee (INR) weakens on Friday as the US Dollar (USD) recovers its recent losses. The weaker-than-expected US Retail Sales triggered speculation that the Federal Reserve (Fed) will soon start cutting interest rates in the coming months and might cap the upside of the pair.
The Reserve Bank of India (RBI) Governor Shaktikanta Das said on Thursday that India has successfully navigated multiple challenges and emerged as the fastest-growing major economy. The economy is forecast to grow by at least 7% for the fourth consecutive year. However, persistent shocks to food prices and renewed geopolitical flashpoints are some factors that are now complicating policymakers' efforts to combat inflation.
Investors await the US January Producer Price Index (PPI) on Friday. The downbeat report could exert some selling pressure on the Greenback and act as a headwind for the USD/INR pair. Furthermore, Fed officials Barr and Daly will speak later in the day. Next week, investors will take more cues from the Indian S&P Global Services PMI and RBI MPC Meeting Minutes.
Daily Digest Market Movers: Indian Rupee remains sensitive amid multiple headwinds and uncertainties
- India’s goods trade deficit narrowed by nearly 12% in January compared to the previous month. The merchandise trade deficit fell to $17.49 billion in January from $19.80 billion in December.
- Imports declined to $54.41 billion from $58.25 billion in December. Exports fell marginally to $36.92 billion in January from $38.45 billion in December. The decline in exports is mostly attributable to the armed war in the Red Sea.
- Foreign portfolio inflows into India are expected to increase to roughly 1% of GDP from 0.4% in the 2014–2022 timeframe, according to the CLSA.
- US Retail Sales dropped 0.8% MoM in January from a 0.4% rise in December, worse than the market expectation of a 0.1% decline. Retail Sales Control Group came in at -0.4% MoM versus 0.6% prior.
- The New York Empire State Manufacturing Index arrived at -2.4 in February, a big improvement from the previous reading of -43.7.
- Federal Reserve Bank of Atlanta President Bostic said the Fed does not face urgency to cut rates given the current economy, and a strong economy argues for patience in adjusting monetary policy.
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Technical Analysis: Indian Rupee resumes downside journey within the long-term trading range
Indian Rupee trades on a weaker note on the day. USD/INR remains stuck within a familiar multi-month-old descending trend channel of 82.70–83.20 since December 8, 2023.
In the near term, USD/INR resumes a bearish outlook as the pair is below the key 100-period Exponential Moving Average (EMA) on the daily timeframe. The 14-day Relative Strength Index which lies below the 50.0 midline also supports the downward momentum for USD/INR.
On the bright side, the critical resistance level for the pair is seen near the upper boundary of the descending trend channel at 83.20. A bullish breakout above this level could get enough fuel to hit a high of January 2 at 83.35, en route to the 84.00 psychological level.
In the case of the bearish environment, the first downside target is located near a low of February 2 at 82.83. Further south, the lower limit of the descending trend channel 82.70 acts as a potential support level for the pair, followed by a low of August 23 at 82.45.
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 Swiss Franc.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | 0.14% | 0.29% | 0.15% | -0.38% | 0.64% | 0.13% | 0.85% | |
| EUR | -0.15% | 0.15% | 0.00% | -0.53% | 0.49% | -0.03% | 0.70% | |
| GBP | -0.30% | -0.16% | -0.14% | -0.68% | 0.35% | -0.17% | 0.56% | |
| CAD | -0.15% | 0.00% | 0.14% | -0.53% | 0.49% | -0.02% | 0.70% | |
| AUD | 0.38% | 0.52% | 0.67% | 0.52% | 1.01% | 0.49% | 1.22% | |
| JPY | -0.65% | -0.50% | -0.33% | -0.51% | -1.04% | -0.49% | 0.22% | |
| NZD | -0.12% | 0.02% | 0.17% | 0.02% | -0.50% | 0.52% | 0.72% | |
| CHF | -0.86% | -0.71% | -0.56% | -0.71% | -1.24% | -0.21% | -0.73% |
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).
Inflation FAQs
What is inflation?
Inflation measures the rise in the price of a representative basket of goods and services. Headline inflation is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core inflation excludes more volatile elements such as food and fuel which can fluctuate because of geopolitical and seasonal factors. Core inflation is the figure economists focus on and is the level targeted by central banks, which are mandated to keep inflation at a manageable level, usually around 2%.
What is the Consumer Price Index (CPI)?
The Consumer Price Index (CPI) measures the change in prices of a basket of goods and services over a period of time. It is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core CPI is the figure targeted by central banks as it excludes volatile food and fuel inputs. When Core CPI rises above 2% it usually results in higher interest rates and vice versa when it falls below 2%. Since higher interest rates are positive for a currency, higher inflation usually results in a stronger currency. The opposite is true when inflation falls.
What is the impact of inflation on foreign exchange?
Although it may seem counter-intuitive, high inflation in a country pushes up the value of its currency and vice versa for lower inflation. This is because the central bank will normally raise interest rates to combat the higher inflation, which attract more global capital inflows from investors looking for a lucrative place to park their money.
How does inflation influence the price of Gold?
Formerly, Gold was the asset investors turned to in times of high inflation because it preserved its value, and whilst investors will often still buy Gold for its safe-haven properties in times of extreme market turmoil, this is not the case most of the time. This is because when inflation is high, central banks will put up interest rates to combat it.
Higher interest rates are negative for Gold because they increase the opportunity-cost of holding Gold vis-a-vis an interest-bearing asset or placing the money in a cash deposit account. On the flipside, lower inflation tends to be positive for Gold as it brings interest rates down, making the bright metal a more viable investment alternative.
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