USD/INR loses traction on the RBI intervention and strong Indian data
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- Indian Rupee attracts some buyers despite the firmer US Dollar.
- India's GDP number will expand by 7.3% in the current fiscal year (2023–24), faster than the 7.2% growth in 2022–23.
- The US Consumer Price Index (CPI) for December will be in the spotlight ahead of Indian Industrial Production.
Indian Rupee (INR) kicks off the new week on a positive note on Monday. Foreign capital inflows and the Reserve Bank of India’s (RBI) intervention have been supporting the INR from any major depreciation. The government revealed the First Advance Estimates (FAEs) of India’s GDP on Friday. The report suggested that India's Gross Domestic Product (GDP) will expand by 7.3% in the current fiscal year (2023–24), which is slightly faster than the 7.2% growth in 2022–23.
Furthermore, the United Nations (UN) stated in the report that India's economic growth will decline marginally to 6.2% in the current year from the projected expansion of 6.3% recorded in 2023, but will maintain its position as the fastest-growing major economy in the world.
Investors will monitor the December US Consumer Price Index (CPI), due later on Thursday. The headline CPI is estimated to show an increase of 3.2% YoY, while the Core CPI is forecast to ease from 4.0% to 3.8% YoY. On Friday, Indian Industrial Production and Manufacturing Output for November will be released.
Daily Digest Market Movers: Indian Rupee remains strong despite firmer USD and global factors
- Indian S&P Global India Services PMI for December came in at 59.0 versus 56.9, above the consensus of 56.5.
- India's foreign exchange reserves jumped by $2.759 billion to $623.2 billion in the week ended December 29, the Reserve Bank of India said on Friday.
- The US Nonfarm Payrolls (NFP) rose 216K in December from the previous reading of 173K, stronger than the 170K expected. The US Unemployment Rate was unchanged at 3.7%.
- The Average Hourly Earnings climbed 0.4% MoM, better than 0.3% expected while the annual figure came in at 4.1 YoY in December versus 4.0% in the previous reading, above the consensus of 3.9%.
- According to the CME Fedwatch tool, the Fed funds futures markets have priced in 65% odds of a March rate cut from the Fed.
Technical Analysis: Indian Rupee keeps the longer-term range unchanged
Indian Rupee trades on a stronger note on the day. The USD/INR pair has remained confined in a trading range of 82.80–83.40 since September. Technically, the bullish outlook of the pair looks vulnerable as the pair is set to cross below the key 100-period Exponential Moving Average (EMA) on the daily chart. Furthermore, the 14-day Relative Strength Index (RSI) is below the 50.0 midpoint, supporting that further decline cannot be ruled out.
A decisive break below the 83.00 psychological support level will pave the way to 82.80, representing the confluence of the lower limit of the trading range and a low of September 12. The next contention level is seen at a low of August 11 at 82.60. On the upside, the upper boundary of the trading range at 83.40 acts as an immediate resistance level for USD/INR. Any follow-through buying above 83.40 will see a rally to a 2023 high of 83.47, en route to the psychological figure at 84.00.
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 | 0.99% | 0.14% | 0.89% | 1.52% | 2.19% | 1.18% | 1.25% | |
| EUR | -0.85% | -0.69% | 0.04% | 0.69% | 1.21% | 0.34% | 0.35% | |
| GBP | -0.15% | 0.69% | 0.76% | 1.38% | 2.13% | 1.03% | 1.01% | |
| CAD | -0.90% | -0.07% | -0.58% | 0.61% | 1.31% | 0.27% | 0.31% | |
| AUD | -1.55% | -0.70% | -1.40% | -0.66% | 0.49% | -0.36% | -0.33% | |
| JPY | -2.23% | -1.23% | -2.03% | -1.12% | -0.50% | -0.89% | -1.07% | |
| NZD | -1.19% | -0.34% | -1.04% | -0.29% | 0.36% | 0.85% | 0.02% | |
| CHF | -1.17% | -0.32% | -1.01% | -0.25% | 0.38% | 1.02% | 0.03% |
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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