USD/INR strengthens amid inflation concerns
|- Indian Rupee loses ground despite the weaker USD, lower oil prices.
- RBI’s Das said the Indian Rupee has witnessed “low volatility” and orderly movements as compared to its peers.
- Das estimates India's real GDP to grow by 6.5% in fiscal years 2023-24 and 2024-25.
Indian Rupee edges lower on Thursday despite the decline in oil prices and softer US Dollar (USD). On Wednesday, the Reserve Bank of India (RBI) Governor Shaktikanta Das said the Indian Rupee has shown moderate volatility and orderly movements as compared to its peers despite elevated US treasury yields and a strong USD. Nonetheless, RBI will continue to closely monitor external financial factors that have potentially impacted the value of INR and the nation’s balance of payments.
Furthermore, RBI Governor Das expressed optimism about India’s economy as the country has demonstrated resilience despite a global slowdown and largely due to its reliance on domestic demand. Das estimates India's real GDP to grow by 6.5% in fiscal years 2023-24 and 2024-25 due to its robust growth rate, ranking the country among the fastest-growing large economies in the world.
Markets remain subdued on Thursday as traders prepare for the Thanksgiving Day holiday in the US. On Friday, the attention will shift to the US S&P Global PMI data. Meanwhile, the foreign fund's outflows and higher oil prices might cap the INR’s upside in the near term.
Daily Digest Market Movers: Indian Rupee remains sensitive to the higher US Treasury yield, stronger USD
- Reserve Bank of India (RBI) Governor Shaktikanta Das forecasted India's real GDP to grow by 6.5% in fiscal years 2023-24 and 2024-25.
- RBI’s Das said its monetary policy will pursue disinflation to progressively align inflation to the target while supporting growth.
- RBI’s Das further stated India is vulnerable to food-price shocks from extreme weather events and global factors despite a recent moderation in prices.
- India’s Ministry of Finance said in the report that the government and the RBI remain on high alert over inflationary risks.
- Indian central bank, which maintained the interest rate over the last four meetings, anticipates that average inflation will decline to 5.4% in 2023-24 from 6.7% in the last fiscal year.
- RBI raised its gold holdings by nine tonnes during the September 2023 quarter, bringing the total to 337 tonnes amassed by central banks worldwide.
- The US weekly Jobless Claims unexpectedly fell to 209K, the biggest fall since June. Continuing Claims dropped to 1.840M versus 1.862M prior.
- The University of Michigan Consumer Sentiment Index climbed to 61.3 in November from an initial reading of 60.4, better than the market expectation of 60.5.
- The UoM 1-year inflation expectations rose to 4.5% from the preliminary 4.4%. The 5–year inflation expectations were steady at 3.2%.
- The FOMC minutes showed all participants agreed to “proceed carefully” and policy decisions at every meeting would continue to be based on the totality of incoming information and economic outlook as well as the balance of risks.
Technical Analysis: The Indian Rupee keeps a positive outlook intact
The Indian Rupee trades weaker on the day. The USD/INR pair has traded within the 82.80–83.35 range since September. The technical outlook suggests that the path of least resistance is to the upside as the pair holds above the key 100-day Exponential Moving Average (EMA) on the daily chart. Additionally, the 14-day Relative Strength Index (RSI) holds above the 50.0 midline, suggesting that further upside looks favorable.
The first resistance level for USD/INR will emerge at 83.35 (the upper boundary of the trading range). If the buyers reclaim the latter, further upside is seen at the year-to-date (YTD) high of 83.47. The next hurdle to watch is a psychological round figure at 84.00.
On the downside, the contention level is located at 82.80. The mentioned level is the confluence of the lower limit of the trading range and a low of September 12. A decisive break below 82.80 will pave the way to a low of August 11 at 82.60. The additional downside filter to watch is a low of August 24 at 82.37.
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 Japanese Yen.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | -0.51% | -0.72% | -0.13% | -0.83% | -1.48% | -0.56% | -0.54% | |
| EUR | 0.53% | -0.19% | 0.38% | -0.33% | -0.95% | -0.06% | -0.02% | |
| GBP | 0.71% | 0.21% | 0.59% | -0.12% | -0.76% | 0.17% | 0.16% | |
| CAD | 0.13% | -0.36% | -0.59% | -0.73% | -1.35% | -0.43% | -0.41% | |
| AUD | 0.85% | 0.33% | 0.13% | 0.72% | -0.62% | 0.27% | 0.32% | |
| JPY | 1.49% | 0.99% | 0.75% | 1.34% | 0.62% | 0.92% | 0.95% | |
| NZD | 0.56% | 0.04% | -0.16% | 0.45% | -0.28% | -0.92% | 0.01% | |
| CHF | 0.53% | 0.04% | -0.17% | 0.42% | -0.29% | -0.94% | -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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