USD/INR gains traction, Indian government keeps an eye on exchange rate
|- Indian Rupee retains a weak undertone on the USD demand.
- India's finance minister said the government is monitoring the exchange rate, especially following the Indian Rupee's decline.
- India’s Gross Domestic Product (GDP) Quarterly for Q2 on Thursday will be in the spotlight this week.
Indian Rupee (INR) loses ground on Tuesday amid the US Dollar (USD) demand from state-run and foreign banks. Nirmala Sitharaman, India's finance minister, said on Monday that the government is keeping a close eye on the exchange rate, especially following the Indian rupee's decline.
India’s finance minister said that the country is well-positioned in terms of macroeconomic fundamentals. However, she highlighted the challenges to the economy from external factors, especially declining demand in the advanced economies. Sitharaman further stated that exchange rate fluctuation and high interest rates are also downside risks for the Indian economy.
Investors will keep an eye on India’s Gross Domestic Product (GDP) Quarterly for the second quarter (Q2) on Thursday. Furthermore, the Indian Fiscal Deficit data, RBI Monetary and Credit Information Review, and Infrastructure Output will be due. Meanwhile, the last phase of state elections on Thursday remains in focus as a change in government might result in modifications to current policies, which have an impact on investors.
Daily Digest Market Movers: Indian Rupee remains vulnerable amid challenges from external factors
- India's GDP is expected to have slowed to 6.8% in the July-September quarter from 7.8% in the previous quarter, according to a Reuters poll.
- Analysts estimate that India's GDP will grow higher than 6.0% in the following years, making it the fastest-growing among major economies.
- India's capital spending was 4.91 trillion Indian Rupees ($58.98 billion) in the first six months of the fiscal year, up from 3.43 trillion Rupees in the same time the previous year.
- India’s Finance Minister Nirmala Sitharaman emphasized the need for continued systemic reforms to make India a $7 trillion economy.
- According to a Reuters poll of equities analysts, the Indian stock market is expected to hit new highs in the next six months and rise by more than 10% by the end of 2024.
- The Reserve Bank of India (RBI) forecasted 6.5% growth for July-September, with RBI Governor Shaktikanta Das projecting an upward surprise.
- The International Monetary Fund raised its fiscal year 2024 growth forecast for India to 6.3% from 6.1% in July, citing stronger-than-expected first-quarter consumption.
- US New Home Sales fell 5.6% MoM to 679K in October, worse than the market estimation of 725K.
- The Dallas Fed Manufacturing Index declined to 19.9 in November versus -19.2 prior.
- US S&P Global Composite PMI remained unchanged at 50.7 In November.
- The Manufacturing PMI declined to 49.4 from 50.0, missing the market forecast of 49.8. The Services PMI rose to 50.8 from 50.6 the previous month, above the market expectation of 50.4.
Technical Analysis: The Indian Rupee keeps bullish stance
The Indian Rupee trades weaker on the day. The USD/INR pair continues to trade in a wider range of 82.80–83.40 since September. The shorter-term bullish outlook of USD/INR remains intact as the pair holds above the key 100-day Exponential Moving Average (EMA) with an upward slope on the daily chart. This upward momentum is reinforced by the 14-day Relative Strength Index (RSI), which is above the 50.0 midline, indicating the path of least resistance is to the upside.
That being said, the first upside barrier for USD/INR will emerge at the upper boundary of the trading range at 83.40. A decisive break above 83.40 will see the additional upside filter at the year-to-date (YTD) high of 83.47, followed by a psychological round figure of 84.00.
On the other hand, the critical support level is seen at the 83.00 psychological mark. Any follow-through selling below 83.00 will pave the way to the confluence of the lower limit of the trading range and a low of September 12 at 82.80. Further south, the next downside target to watch is a low of August 11 at 82.60.
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 New Zealand Dollar.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | -0.07% | -0.93% | -0.86% | -0.78% | -0.02% | -0.95% | -0.46% | |
| EUR | 0.05% | -0.84% | -0.80% | -0.75% | 0.03% | -0.90% | -0.37% | |
| GBP | 0.92% | 0.86% | 0.07% | 0.13% | 0.89% | -0.02% | 0.47% | |
| CAD | 0.85% | 0.80% | -0.06% | 0.06% | 0.82% | -0.10% | 0.40% | |
| AUD | 0.78% | 0.73% | -0.11% | -0.05% | 0.77% | -0.15% | 0.37% | |
| JPY | 0.02% | -0.03% | -0.90% | -0.84% | -0.77% | -0.95% | -0.43% | |
| NZD | 0.94% | 0.90% | 0.03% | 0.09% | 0.15% | 0.91% | 0.49% | |
| CHF | 0.45% | 0.38% | -0.47% | -0.40% | -0.34% | 0.43% | -0.49% |
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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