USD/INR gains ground on the renewed USD demand

Indian Rupee edges lower amid the renewed US dollar demand
The strong month of equity inflows boosts the Indian Rupee ahead of the long holiday.
The US Building Permits and Housing Starts will be due later on Tuesday.

The Indian Rupee (INR) trades on a softer note on Tuesday. Custodial banks' dollar sales on Monday helped the INR rise to a nearly three-month high before US Dollar (USD) demand from importers pulled it back and made it close slightly lower. Nonetheless, the anticipation of three rate cuts next year from the Fed might cap the US Dollar’s (USD) upside and act as a headwind for USD/INR.

Overseas investors purchased more than $1 billion in Indian shares on Friday, after $1.5 billion in purchases in the first four days of the week, according to National Securities Depository Ltd. The market could face a choppy session amid low trading activity as traders prepare for the long holiday weekend.

India’s Minister of State for Finance, Pankaj Chaudhary said on Monday that narrowing down the impact of the rupee's depreciation on the country's exports and imports is not possible since various factors also explain trade movements. Chaudhary added that the INR’s exchange rate is market-determined, with no target, specific level, or band. Earlier this month, RBI Governor Shaktikanta Das said the Indian rupee had been less volatile in 2023 compared to its emerging market peers.

Investors will focus on the release of US housing data on Tuesday, including Building Permits and Housing Starts. Later this week, the US Gross Domestic Product Annualized (Q3) on Thursday and the Core Personal Consumption Expenditures Price Index (PCE), the Fed’s preferred inflation gauge, on Friday will be in the spotlight.

Daily Digest Market Movers: Indian Rupee stays on the soft side amid the global challenges

According to bankers and analysts on Monday, importers could use the Indian rupee's rise to its highest level in almost three months to hedge a significant portion of their short-term foreign payments.
According to the Reserve Bank of India (RBI), India's foreign currency reserves increased by $2.816 billion in the week ended December 8 to a four-month high of $606.859 billion.
The RBI kept key policy rates unchanged in its October meeting while raising India's GDP growth forecast for fiscal year 2023–24 to 7.0% from 6.5%.
In a display of resilience and economic fortitude, India is charting a path of accelerated growth, outpacing global uncertainties. According to the Asian Development Outlook.
New York Fed President John Williams said the Fed isn't talking about rate cuts right now and it's too early to speculate about them.
Atlanta Fed President Raphael Bostic stated that the Fed can begin reducing interest rates sometime in the third quarter of 2024 if inflation falls.

Technical Analysis: Indian Rupee keeps the longer-term range theme unchanged

Indian Rupee trades weaker on the day. The USD/INR pair has traded within a trading range between 82.80 and 83.40 since September. The positive outlook of USD/INR remains intact as the pair bounces back above the key 100-day Exponential Moving Average (EMA) on the daily chart. However, the 14-day Relative Strength Index (RSI), which stands below the 50.0 midline, warrants caution for bullish traders.

A decisive break below the key support level of 83.00 will trigger the possibility of a short-term down move to 82.80. The mentioned level is the confluence of the lower limit of the trading range and a low of September 12. Further south, the next contention level is located near a low of August 11 at 82.60. On the other hand, the upper boundary of the trading range at 83.40 acts as an immediate resistance level. The additional upside filter to watch is the year-to-date (YTD) high of 83.47, en route to the psychological round mark of 84.00.

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		-0.02%	-0.05%	-0.03%	-0.26%	0.54%	-0.27%	-0.10%
EUR	0.02%		-0.03%	-0.01%	-0.24%	0.55%	-0.25%	-0.06%
GBP	0.05%	0.02%		0.02%	-0.21%	0.59%	-0.24%	-0.05%
CAD	0.03%	-0.01%	-0.04%		-0.26%	0.55%	-0.24%	-0.07%
AUD	0.26%	0.24%	0.21%	0.23%		0.79%	-0.01%	0.15%
JPY	-0.54%	-0.55%	-0.59%	-0.55%	-0.78%		-0.81%	-0.63%
NZD	0.28%	0.26%	0.23%	0.23%	0.02%	0.80%		0.20%
CHF	0.10%	0.07%	0.05%	0.07%	-0.16%	0.62%	-0.17%

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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