USD/INR posts modest gains despite weaker US Retail Sales data
|- Indian Rupee (INR) loses ground on Wednesday despite the weaker US Dollar.
- The ongoing India inflows might support the INR, while higher crude oil prices could limit its gains.
- Amid the absence of top-tier data released on Wednesday, investors await Indian and US PMI reports on Friday.
The Indian Rupee (INR) edges lower on Wednesday despite the softer Greenback. The local currency strengthened on Tuesday, supported by US Dollar (USD) sales by state-run banks and likely foreign inflows in Indian bonds and equities. Analysts expect India’s upcoming inclusion in the JPMorgan emerging market debt index could boost the Indian Rupee in the near term.
In the meantime, the weaker-than-expected US Retail Sales report spurred the likelihood that the Federal Reserve (Fed) will start to cut interest rates in a few months, which weigh on the Greenback. However, the rise of crude oil prices to two-month highs might cap the upside of the INR as India is the third largest consumer of Oil behind the US and China.
The Indian and US economic docket will be empty on Wednesday. Investors await the Indian HSBC Manufacturing and Services PMI on Friday for fresh impetus, along with the Reserve Bank of India (RBI) Meeting Minutes. On the US front, the S&P Global PMI reports will be released at the end of the week.
Daily Digest Market Movers: Indian Rupee trades softer despite the country’s positive economic outlook
- Indian Equity indices touched record highs on Tuesday, with the benchmark BSE Sensex ending at 77,301, up 308 points or 0.4%, while the Nifty50 closed at 23,558, up 92 points or 0.39%.
- The Indian Rupee may strengthen beyond 83.20 once inflows from India's inclusion in the JPMorgan emerging market debt index start later this month, said Sajal Gupta, head of forex and commodities at Nuvama Wealth Management's institutional desk.
- The US Retail Sales rose 0.1% MoM in May from a 0.2% decline in April, below the market expectation for an increase of 0.2%, the Commerce Department reported Tuesday.
- New York Fed President John Williams said on Tuesday that he expected interest rates to come down gradually as inflation eases.
- Boston Fed President Susan Collins stated that despite progress on inflation, price growth remained persistently over the Fed's 2% inflation objective, adding that it is still too early to say whether or not inflation is on course toward the target.
- Richmond Fed President Thomas Barkin said the recent data showed consumer prices did not rise at all from April to May, but the choppiness in data since last year means the policy path ahead is not clear.
Technical analysis: USD/INR remains constructive in the longer term
The Indian Rupee trades on a softer note on the day. According to the daily timeframe, the positive outlook of the USD/INR pair remains unchanged as the pair holds above the key 100-day Exponential Moving Average (EMA). However, the 14-day Relative Strength Index (RSI) returns bearish territory around 48.0, indicating that consolidation or further downside cannot be ruled out.
Extended losses below the 100-day EMA at 83.25 will see a drop to the 83.00 psychological level, followed by 82.78 (low of January 15).
On the upside, the first upside barrier for the pair is seen at 83.55 (high of June 18). Further north, the next hurdle will emerge at 83.72 (high of April 17) en route to 84.00 (round mark).
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 New Zealand Dollar.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | 0.03% | -0.01% | 0.00% | -0.10% | -0.03% | 0.11% | -0.02% | |
| EUR | -0.02% | -0.03% | -0.02% | -0.11% | -0.05% | 0.09% | -0.05% | |
| GBP | 0.02% | 0.03% | 0.02% | -0.08% | -0.02% | 0.12% | -0.01% | |
| CAD | -0.02% | 0.01% | -0.03% | -0.11% | -0.03% | 0.10% | -0.03% | |
| AUD | 0.11% | 0.11% | 0.08% | 0.11% | 0.08% | 0.20% | 0.07% | |
| JPY | 0.03% | 0.06% | 0.01% | 0.03% | -0.08% | 0.13% | 0.01% | |
| NZD | -0.13% | -0.09% | -0.12% | -0.14% | -0.24% | -0.14% | -0.13% | |
| CHF | 0.02% | 0.04% | 0.01% | 0.03% | -0.09% | -0.01% | 0.13% |
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 economy FAQs
The Indian economy has averaged a growth rate of 6.13% between 2006 and 2023, which makes it one of the fastest growing in the world. India’s high growth has attracted a lot of foreign investment. This includes Foreign Direct Investment (FDI) into physical projects and Foreign Indirect Investment (FII) by foreign funds into Indian financial markets. The greater the level of investment, the higher the demand for the Rupee (INR). Fluctuations in Dollar-demand from Indian importers also impact INR.
India has to import a great deal of its Oil and gasoline so the price of Oil can have a direct impact on the Rupee. Oil is mostly traded in US Dollars (USD) on international markets so if the price of Oil rises, aggregate demand for USD increases and Indian importers have to sell more Rupees to meet that demand, which is depreciative for the Rupee.
Inflation has a complex effect on the Rupee. Ultimately it indicates an increase in money supply which reduces the Rupee’s overall value. Yet if it rises above the Reserve Bank of India’s (RBI) 4% target, the RBI will raise interest rates to bring it down by reducing credit. Higher interest rates, especially real rates (the difference between interest rates and inflation) strengthen the Rupee. They make India a more profitable place for international investors to park their money. A fall in inflation can be supportive of the Rupee. At the same time lower interest rates can have a depreciatory effect on the Rupee.
India has run a trade deficit for most of its recent history, indicating its imports outweigh its exports. Since the majority of international trade takes place in US Dollars, there are times – due to seasonal demand or order glut – where the high volume of imports leads to significant US Dollar- demand. During these periods the Rupee can weaken as it is heavily sold to meet the demand for Dollars. When markets experience increased volatility, the demand for US Dollars can also shoot up with a similarly negative effect on the Rupee.
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