USD/INR flat-lines ahead of US PMI data
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- Indian Rupee trades on a flat note amid the firmer USD, higher US yield.
- The Indian economy is poised to touch $5 trillion next financial year, said the Union Petroleum Minister.
- US S&P Global Purchasing Managers' Index (PMI) report will be released later on Wednesday.
Indian Rupee (INR) trades flat on Wednesday despite further strength in the US Dollar (USD) and higher US yields. The robust US economic data prompted the expectation that the Federal Reserve (Fed) is unlikely to cut rates as aggressively as the market expects. Investors have priced in a 49% chance of a March rate cut from an 80% just a week ago, according to the CME FedWatch Tool.
Nonetheless, the positive economic outlook in India provides some support for the Indian Rupee. Union Petroleum Minister Hardeep Puri said that the Indian economy is poised to touch $5 trillion next financial year and capitalize to double to $10 trillion by the end of this decade. Puri further stated that the Indian economy is booming and expected to be the fastest-growing major economy and would be a $5 trillion economy by 2024–25.
Market players await the US S&P Global Purchasing Managers' Index (PMI) report on Wednesday for fresh impetus. Later this week, the US Q4 Gross Domestic Product Annualized and the December Core Personal Consumption Expenditures Price Index (Core PCE) will be in the spotlight. These two key US events may provide a guide to the outlook for interest rates in the United States. Indian markets will be closed on Friday for Republic Day.
Daily Digest Market Movers: Indian Rupee remains resilient amid global factors and uncertainties
- India has replaced Hong Kong as the fourth-largest stock market in the world, with a market capitalization of $4.3 trillion.
- The Indian GDP is expected to grow 7.3% in the current financial year 2023–24, remaining the fastest-growing major economy, according to the National Statistics Office.
- The US Richmond Fed Manufacturing Index came in at -15 in January versus -11 prior, below the market consensus of -7. This figure marked its third consecutive negative reading.
- The market now expects 125 basis points (bps) of rate cuts from the Federal Reserve (Fed) in 2024, down from around 175 bps earlier this month.
- Fed governor Christopher Waller stated that the Fed should cut rates "methodically and carefully" and definitely not in a “rushed" manner.
- Atlanta Fed President Raphael Bostic said he sees rate cuts beginning in the third quarter, whereas San Francisco Fed President Mary Daly suggested policymakers must be patient about rate cuts.
- The preliminary US S&P Global Services PMI for January is forecast to ease from 51.4 to 51.0, while the Manufacturing PMI is projected to remain steady at 47.9.
Technical Analysis: Indian Rupee sticks to the 82.80–83.40 range
Indian Rupee trades on a flat note on the day. The USD/INR pair remains confined within a familiar trading band of 82.80–83.40 since September 2023. USD/INR holds above the key 100-period Exponential Moving Average (EMA) on the daily chart. Additionally, the 14-day Relative Strength Index (RSI) bounces back above the 50.0 midline, supporting the buyers for the time being.
The key resistance level for USD/INR will emerge at the upper boundary of the trading range at 83.40. The next hurdle is located at 83.47 (2023 high) and 84.00 (round figure). On the downside, the first support level is seen at the 83.00 psychological mark. A break below 83.00 will see the next contention level at 82.80 (the lower limit of the trading range and a low of January 15) and 82.60 (low of August 11).
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 weakest against the Pound Sterling.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | 0.12% | -0.54% | -0.20% | 0.15% | 0.40% | 0.56% | 0.85% | |
| EUR | -0.12% | -0.66% | -0.33% | 0.06% | 0.30% | 0.45% | 0.71% | |
| GBP | 0.55% | 0.66% | 0.33% | 0.68% | 0.94% | 1.10% | 1.36% | |
| CAD | 0.20% | 0.32% | -0.33% | 0.34% | 0.59% | 0.76% | 1.03% | |
| AUD | -0.16% | -0.06% | -0.71% | -0.37% | 0.24% | 0.39% | 0.67% | |
| JPY | -0.41% | -0.30% | -0.94% | -0.63% | -0.25% | 0.16% | 0.43% | |
| NZD | -0.53% | -0.41% | -1.10% | -0.77% | -0.38% | -0.16% | 0.30% | |
| CHF | -0.84% | -0.73% | -1.39% | -1.06% | -0.69% | -0.43% | -0.27% |
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
What are the key factors driving the Indian Rupee?
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.
How do the decisions of the Reserve Bank of India impact the Indian 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.
What macroeconomic factors influence the value of the Indian Rupee?
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.
How does inflation impact the Indian 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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