USD/INR edges higher ahead of Indian, US CPI data
|- The Indian Rupee edges lower on Tuesday despite the weaker USD.
- RBI is anticipated to maintain its policy in April as the Indian economy remains strong and inflation remains above its 4% target.
- The Indian and US February CPI inflation data will be in the spotlight on Tuesday.
The Indian Rupee (INR) trades on a weaker note on Tuesday, despite the decline of the US dollar (USD). The softer Greenback and a decline in crude oil prices might boost the Indian Rupee in the near term. INR reached an over six-month intraday high of 82.65 on Monday, but the rally was limited by a possible invention from the Reserve Bank of India (RBI) to prevent a significant appreciation in the INR.
India's headline retail inflation is expected to drop to 5.02% in February from 5.10% in January, extending it within the RBI's tolerance range of 2-6% for the sixth consecutive month. However, economists expect the Indian central bank to maintain current monetary policy at its April meeting since the domestic economy remains strong and inflation continues to stay above its 4% target.
Looking ahead, investors will monitor India’s and US Consumer Price Index (CPI) inflation data for February, due on Tuesday. Later this week, India’s Wholesale Price Index (WPI) of Food, Fuel, and Inflation will be released on Wednesday, and the US Retail Sales will be published on Thursday.
Daily Digest Market Movers: Indian Rupee remains vulnerable to high inflation, geopolitical risks
- India's foreign reserves increased by $6.55 billion to $625.626 billion in the week ended March 1, according to the RBI.
- Indian Commerce and Industry Minister Piyush Goyal said many developed and developing countries have shown interest in trading in the Indian currency with India to cut transaction costs as the INR gains traction
- The Indian economy will transition to an upper middle-income country by FY36, reaching the $15 trillion mark by FY47, according to India Ratings and Research (Ind-Ra).
- Fed Chair Jerome Powell said the US economy is healthy, and policymakers are not far from having enough confidence in inflation's downward trajectory to begin cutting rates.
- Futures markets have priced in about a 70% chance the Fed will start cutting interest rates by mid-June and expect a full percentage point of rate cuts by the end of the year, according to the CME FedWatch Tools.
- The headline CPI figure is expected to remain steady at 3.1% YoY in February, while the Core CPI figure is estimated to ease to 3.7% YoY in February.
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Technical Analysis: Indian Rupee remains confined within a longer-term band of 82.60–83.15
Indian Rupee trades softer on the day. USD/INR remains stuck within a multi-month-old descending trend channel since December 8, 2023 around 82.60–83.15.
In the near term, USD/INR maintains the negative outlook unchanged as the pair is below the 100-day Exponential Moving Average (EMA) on the daily chart. Additionally, the 14-day Relative Strength Index (RSI), which lies below the 50.0 midlines, is contributing to bolstering the downward momentum.
The critical support level is located at the lower limit of the descending trend channel at 82.60. A break below this level could drag the pair lower to a low of August 23 at 82.45 and then revisit a low of June 1 at 82.25.
On the other hand, the first upside barrier will emerge at the 83.00 mark, portraying the confluence of the 100-day EMA and a psychological round mark. The additional upside filter to watch is the upper boundary of the descending trend channel at 83.15. A bullish breakout above the mentioned level might attract bulls and the pair might recover to a high of January 2 at 83.35, followed by an 84.00 round figure.
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 | -0.06% | 0.03% | 0.00% | 0.04% | 0.48% | 0.04% | -0.01% | |
| EUR | 0.06% | 0.08% | 0.05% | 0.10% | 0.51% | 0.07% | 0.02% | |
| GBP | -0.03% | -0.08% | -0.03% | 0.03% | 0.48% | 0.03% | -0.03% | |
| CAD | 0.00% | -0.06% | 0.01% | 0.03% | 0.48% | 0.03% | -0.03% | |
| AUD | -0.05% | -0.11% | -0.05% | -0.05% | 0.46% | -0.01% | -0.06% | |
| JPY | -0.48% | -0.49% | -0.45% | -0.48% | -0.43% | -0.41% | -0.48% | |
| NZD | -0.03% | -0.07% | -0.02% | -0.02% | 0.02% | 0.46% | -0.03% | |
| CHF | 0.01% | -0.02% | 0.04% | 0.02% | 0.07% | 0.53% | 0.05% |
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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