- Indian Rupee loses ground in the Diwali Balipratipada holiday in India.
- India’s Inflation eased in October, closer to the central bank's target of 4%.
- The US Consumer Price Index (CPI) and India’s Wholesale Price Index (WPI) inflation data will be the highlight this week.
Indian Rupee (INR) edges lower on Tuesday as traders avoid taking large positions on the occasion of the Diwali Balipratipada holiday. Inflation in India slowed down for the third consecutive month in October, edging closer to the central bank's medium-term target of 4%. However, the country is particularly vulnerable to higher crude prices as India is the world's third-biggest oil consumer.
Investors will closely monitor the US Consumer Price Index (CPI) data due on Tuesday. The headline CPI is expected to rise by 0.1% MoM in October, while the core CPI is forecasted to climb by 0.3% MoM and 4.1% YoY. Furthermore, India’s Wholesale Price Index (WPI) Inflation YoY will also be released. The volatility in the market might trigger an intervention from the Reserve Bank of India (RBI) to protect the national currency.
Daily Digest Market Movers: Indian Rupee remains sensitive to global factors and uncertainty
- India’s Consumer Price Index (CPI) rose 4.87% YoY in October from 5.02% in September, above the market expectation of 4.80%.
- The Reserve Bank of India (RBI) has kept the interest rates unchanged for four straight meetings while maintaining a relatively hawkish policy stance to alleviate price pressures.
- RBI Governor Shaktikanta Das said India remains vulnerable to food price shocks, and monetary policy is still influencing inflation towards the 4% target.
- RBI estimates that India's GDP will expand at a 6.3% annual rate in the current fiscal year.
- Controlling food prices and inflation is a top priority for Prime Minister Narendra Modi and his government as the election season gets closer.
- The New York Fed’s survey of consumer expectations showed the 1-year and 5-year inflation outlook eased to 3.57% and 2.72%, respectively.
- The US government reported a $66 billion budget deficit in October, compared to a deficit of $87 billion during the same month of last year.
- The University of Michigan's Consumer Sentiment Index dropped to 60.4 in November versus 63.8 prior, below the market consensus of 63.7.
- The UoM 12-month inflation expectations climbed to 4.4% from 4.2%, while the 5-year expectations rose to 3.2% from 3.0%.
- Fed Chair Jerome Powell reiterated that the Fed will hike rates again if deemed necessary to control inflation.
Technical Analysis: Indian Rupee keeps the bearish outlook unchanged
The Indian Rupee trades soft on the day. The USD/INR pair trades in a familiar range of 83.00–83.35 since September. The USD/INR bullish potential remains intact as the pair holds above the key 100- and 200-day Exponential Moving Averages (EMA) on the daily chart.
The first upside barrier of the pair will emerge near the upper boundary of the trading range of 83.35. Any follow-through buying will pave the way to the year-to-date (YTD) high of 83.47. Further north, the next upside stop to watch is a psychological round figure at 84.00. On the flip side, 83.00 acts as a key contention level. A decisive break below 83.00 will see losses extend to a low of September 12 at 82.82, followed by a low of August 4 at 82.65.
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 Euro.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | 0.22% | 0.57% | 0.86% | 1.86% | 1.13% | 1.51% | 0.31% | |
| EUR | -0.20% | 0.36% | 0.66% | 1.63% | 0.94% | 1.34% | 0.12% | |
| GBP | -0.57% | -0.37% | 0.29% | 1.29% | 0.57% | 0.98% | -0.25% | |
| CAD | -0.87% | -0.67% | -0.29% | 1.01% | 0.28% | 0.69% | -0.52% | |
| AUD | -1.89% | -1.68% | -1.31% | -1.01% | -0.73% | -0.32% | -1.56% | |
| JPY | -1.14% | -0.94% | -0.56% | -0.31% | 0.71% | 0.44% | -0.81% | |
| NZD | -1.57% | -1.36% | -0.98% | -0.69% | 0.32% | -0.41% | -1.23% | |
| CHF | -0.34% | -0.13% | 0.25% | 0.53% | 1.54% | 0.81% | 1.22% |
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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