USD/INR gains traction, investors await the Indian, US CPI data
|- Indian Rupee remains on the defensive after reaching a record low of 83.42.
- The markets anticipate the RBI would intervene in the FX market to limit the INR’s depreciation.
- The India and US Consumer Price Indexes (CPI) will be closely watched events.
Indian Rupee (INR) loses traction on Monday. The local currency bounces off the all-time low of 83.42 against the US Dollar (USD) on Friday. The pressure on the Indian rupee was exacerbated by an outage of the interbank order matching system, which potentially prompted the Reserve Bank of India (RBI) to intervene to calm the market. The markets anticipate the RBI would systematically defend the local currency as it has in previous months. However, the RBI’s move might depend on the US inflation data on Tuesday.
The US Consumer Price Index (CPI) is expected to rise 0.1% MoM in October and the core measure is estimated to grow 0.3% MoM. The stronger-than-expected reading might raise the probability of a Fed rate hike in the December or January meeting. Furthermore, India’s CPI will be released later on Monday, which is forecasted to rise 4.8% YoY in October. The markets will be closed on Tuesday on the occasion of Diwali Balipratipada.
Daily Digest Market Movers: Indian Rupee weakens amid the multiple challenges
- The Reserve Bank of India (RBI) Governor Shaktikanta Das expressed optimism about India's economic outlook but cautioned that the path to becoming a prosperous society may not be smooth.
- RBI’s Monetary Policy Committee (MPC) in its October meeting, anticipates India’s Consumer Price Index (CPI) at 5.4% for 2023–24, from 6.7% in 2022–23.
- According to RBI Governor Das, India is still sensitive to recurring and overlapping food price shocks, and monetary policy is still focused on maintaining inflation at the 4% target.
- RBI forecasts that India's GDP will grow at a 6.3% annual rate in the current fiscal year.
- The University of Michigan's Consumer Sentiment Index declined to 60.4 in November from the previous month's 63.8, below the expectation of 63.7.
- The US 12-month inflation expectations rose to 4.4% from 4.2%, while the 5-year expectations surged to 3.2% from 3.0%.
- Federal Reserve (Fed) Bank of San Francisco President Mary Daly said she is not yet ready to say if the central bank has completed its interest rate-hiking cycle to bring back inflation to 2%.
- Fed Chair Jerome Powell said that if it becomes appropriate to tighten policy further, the central bank will not hesitate to do it.
Technical Analysis: The Indian Rupee’s bearish outlook remains intact
The Indian Rupee trades with a soft note on the day. The USD/INR pair has broken above the trading range of 83.00–83.30 since September. According to the daily chart, USD/INR maintains a bullish vibe as the pair holds above the key 100- and 200-day Exponential Moving Averages (EMA).
A high of November 10 at 83.42 acts as an immediate resistance level for the pair. A decisive break above 83.42 will see a rally to a psychological round figure at 84.00. On the flip side, the initial contention level will emerge near a resistance-turned-support level at 83.30. A key support level is seen at 83.00, representing the confluence of a low from October 24 and a round mark. The additional downside filter to watch is a low of September 12 at 82.82.
US Dollar price today
The table below shows the percentage change of US Dollar (USD) against listed major currencies today. US Dollar was the strongest against the Japanese Yen.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | -0.02% | -0.08% | 0.07% | 0.00% | 0.19% | -0.04% | -0.03% | |
| EUR | 0.02% | -0.08% | 0.08% | 0.00% | 0.21% | -0.03% | 0.02% | |
| GBP | 0.09% | 0.07% | 0.15% | 0.08% | 0.28% | 0.04% | 0.07% | |
| CAD | -0.08% | -0.07% | -0.15% | -0.08% | 0.13% | -0.10% | -0.07% | |
| AUD | 0.01% | -0.01% | -0.07% | 0.07% | 0.20% | -0.02% | -0.02% | |
| JPY | -0.19% | -0.21% | -0.28% | -0.13% | -0.20% | -0.23% | -0.21% | |
| NZD | 0.04% | 0.02% | -0.06% | 0.10% | 0.02% | 0.22% | 0.01% | |
| CHF | -0.01% | -0.02% | -0.07% | 0.08% | 0.00% | 0.21% | -0.02% |
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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