USD/INR drifts higher despite thin trading

Indian Rupee trades on a softer note amid the light trading volume.
Fitch Ratings predicts India's robust economic growth will boost corporate demand, offsetting global market challenges.
Fitch Ratings anticipated India’s GDP growth of 6.5% during fiscal 2024–25.

Indian Rupee (INR) drifts lower on Wednesday amid the holiday season's thin trading. In its latest research report on ’India Corporates: Sector Trends 2024’, Fitch Ratings forecasted that India’s resilient economic growth will boost the performance of the corporate sector and offset weaknesses from global market challenges. Furthermore, the leading credit rating agency stated that India is expected to be the world’s fastest-growing country, with resilient GDP growth of 6.5% during the fiscal 2024-25.

Despite robust macroeconomic dynamics, investors will monitor the developments surrounding food inflation and how the impending general elections in 2024 will eventually play out in shaping future economic policies. Later this week, the risk sentiment is expected to continue influencing currency movements amid the quiet session in the last week of 2023.

Daily Digest Market Movers: Indian Rupee remains strong despite global headwinds and uncertainties

India's current account deficit narrowed to $8.3 billion in the second quarter of 2023-24, according to the Reserve Bank of India (RBI).
The market capitalization of India's stock markets has surpassed $4 trillion, with the benchmark Nifty50 returning 17% this year.
India's total trade in GDP has expanded from around 15% in the early 1990s to nearly 50% in 2022.
India's foreign currency reserves were at $606.9 billion on December 8, 2023, ranking fourth among major foreign exchange reserve-holding countries, and climbed by $28.4 billion between 2023 and 2024.
The US Dallas Fed Manufacturing Business Index for December dropped 9.3 versus -19.9 prior. November's Chicago Fed National Activity Index arrived at 0.03 from the previous reading of a 0.49 drop.
November’s Core Personal Consumption Expenditures Price Index (Core PCE) rose 0.1% MoM and grew 3.2% YoY. Meanwhile, the headline PCE came in at -0.1% MoM and 2.6%. YoY.

Technical Analysis: Indian Rupee clings to the longer-term range theme

Indian Rupee trades weaker on the day. The USD/INR pair remains stuck within a familiar multi-month-old trading band of 82.80–83.40. Technically, the path of least resistance is to the upside as the pair holds above the key 100-period Exponential Moving Average (EMA) on the daily chart. However, the shorter-term bullish outlook looks vulnerable, hinted by the 14-day Relative Strength Index (RSI) that stands below the 50.0 midpoint.

Any follow-through buying above the upper boundary of the trading range at 83.40 will pave the way to the year-to-date (YTD) high of 83.47, en route to the 84.00 psychological mark. On the other hand, the round figure at 83.00 acts as a key support level for USD/INR. The next contention level is seen near the confluence of the lower limit of the trading range and a low of September 12 at 82.80. A decisive break below 82.80 will see a drop to a low of August 11 at 82.60.

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 strongest against the Pound Sterling.

	USD	EUR	GBP	CAD	AUD	JPY	NZD	CHF
USD		-0.57%	0.00%	-1.12%	-1.01%	-0.92%	-0.99%	-0.81%
EUR	0.56%		0.57%	-0.55%	-0.45%	-0.35%	-0.42%	-0.25%
GBP	0.00%	-0.56%		-1.11%	-1.00%	-0.91%	-0.98%	-0.81%
CAD	1.11%	0.55%	1.08%		0.10%	0.20%	0.13%	0.29%
AUD	1.01%	0.43%	1.00%	-0.11%		0.09%	0.02%	0.20%
JPY	0.91%	0.36%	0.89%	-0.19%	-0.09%		-0.07%	0.09%
NZD	0.98%	0.41%	0.99%	-0.13%	-0.02%	0.07%		0.19%
CHF	0.84%	0.25%	0.80%	-0.30%	-0.19%	-0.10%	-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).

Inflation FAQs

What is inflation?

Inflation measures the rise in the price of a representative basket of goods and services. Headline inflation is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core inflation excludes more volatile elements such as food and fuel which can fluctuate because of geopolitical and seasonal factors. Core inflation is the figure economists focus on and is the level targeted by central banks, which are mandated to keep inflation at a manageable level, usually around 2%.

What is the Consumer Price Index (CPI)?

The Consumer Price Index (CPI) measures the change in prices of a basket of goods and services over a period of time. It is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core CPI is the figure targeted by central banks as it excludes volatile food and fuel inputs. When Core CPI rises above 2% it usually results in higher interest rates and vice versa when it falls below 2%. Since higher interest rates are positive for a currency, higher inflation usually results in a stronger currency. The opposite is true when inflation falls.

What is the impact of inflation on foreign exchange?

Although it may seem counter-intuitive, high inflation in a country pushes up the value of its currency and vice versa for lower inflation. This is because the central bank will normally raise interest rates to combat the higher inflation, which attract more global capital inflows from investors looking for a lucrative place to park their money.

How does inflation influence the price of Gold?

Formerly, Gold was the asset investors turned to in times of high inflation because it preserved its value, and whilst investors will often still buy Gold for its safe-haven properties in times of extreme market turmoil, this is not the case most of the time. This is because when inflation is high, central banks will put up interest rates to combat it.
Higher interest rates are negative for Gold because they increase the opportunity-cost of holding Gold vis-a-vis an interest-bearing asset or placing the money in a cash deposit account. On the flipside, lower inflation tends to be positive for Gold as it brings interest rates down, making the bright metal a more viable investment alternative.

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