- The Indian Rupee loses momentum in Tuesday’s European session amid a stronger Greenback.
- India’s foreign fund inflows, rising Fed rate cut bets, and lower crude oil prices might cap the INR’s downside.
- Investors await the US June Retail Sales and Fed’s Kugler speech on Tuesday.
The Indian Rupee (INR) extends downside on Tuesday as the US Dollar (USD) strengthened across the board. The weakness in the Chinese Yuan after slower-than-expected economic growth in China for the second quarter might weigh on Asian currencies, including the INR.
Nonetheless, the significant India’s foreign fund inflows and the rising odds of the US Federal Reserve (Fed) rate cuts in September could limit the loss in the local currency. Also, the fall in crude oil prices underpin the INR as India was the third-largest oil consumer after the United States (US) and China. Later on Tuesday, investors will monitor the US Retail Sales for June and the speech from the Federal Reserve’s (Fed) Adriana Kugler.
Daily Digest Market Movers: Indian Rupee remains weak amid global factors and risk sentiment
- India’s Wholesale Price Index (WPI) Inflation rose to a 16-month high of 3.36% YoY in June from 2.61% in May, according to the latest official data released on Monday. This figure was weaker than the 3.50% expected.
- "Positive rate of inflation in June, 2024 is primarily due to increase in prices of food articles, manufacture of food products, crude petroleum & natural gas, mineral oils, other manufacturing etc," said the official press release.
- Indian WPI Food came in at 10.87% YoY in June, compared to 9.82% in May. Meanwhile, the WPI Fuel arrived at 1.03% versus 1.35% earlier.
- Fed Chair Jerome Powell said on Monday that the US has performed remarkably well in recent years, adding that the central bank won't be waiting until inflation reaches the 2% annual target.
- Federal Reserve Bank of San Francisco President Mary Daly did not provide time-based rate cut guidance but acknowledged significant progress on inflation.
Technical analysis: USD/INR sticks to the consolidation scheme in the short-term
The Indian Rupee weakens on the day. The trend of the USD/INR pair appears to be bullish, with the pair holding above the key 100-day Exponential Moving Average (EMA) on the daily chart. Additionally, the 14-day Relative Strength Index (RSI) points higher above 56.40, indicating that further upside looks favorable.
In the near term, the pair has traded within its month-long trading range since March 21.
A move past the resistance area at the upper boundary of the trading range at 83.65 could clear the way for a move back to the all-time high of 83.75. The next upside barrier will emerge at the 84.00 psychological level.
On the other hand, the initial target could be the support level around the 100-day EMA at 83.37. If bearish momentum continues, look for further downside toward the 83.00 round figure, followed by 82.82, a low of January 12.
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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