USD/INR drifts lower amid thin holiday trading

Indian Rupee holds positive ground despite the mild recovery of the USD.
RBI’s Das said that India is one of the world’s fastest-growing major economies with a rising potential growth profile.
The December’s US Chicago Purchasing Managers’ Index (PMI) is due on Friday.

Indian Rupee (INR) trades on a positive note on Friday despite a modest rebound in the US Dollar (USD). According to the Financial Stability Report (FSR), the Indian economy and financial system remain resilient, bolstered by robust macroeconomic fundamentals, stable financial institution balance sheets, moderating inflation and an improving external sector position.

RBI Governor Shaktikanta Das said that India is one of the fastest-growing major economies in the world with a rising potential growth profile. Governor Das further stated that the central bank will act early and decisively to prevent any buildup of risks to the Indian economy.

The market has another quiet session as traders enter holiday mode. The Chicago Purchasing Managers’ Index (PMI) for December will be released from the US docket later on Friday, which is expected to decline from 55.8 to 51.0.

Daily Digest Market Movers: Indian Rupee shows resilience amid global factors

The Gross Non-Performing Asset (GNPA) ratio of Indian banks improved further in the second quarter of the current fiscal year, easing to a new decadal low of 3.2%.
India's current account deficit narrowed to $8.3 billion in the second quarter of 2023–24.
Fitch Ratings forecast India to be the world’s fastest-growing country, with resilient GDP growth of 6.5% during fiscal 2024–25.
According to the CEBR, India is set to become the world's third-biggest by 2032 and will eventually surpass China and the United States to become the "world's largest economic superpower" by 2100.
US Initial Jobless Claims for the week ending December 23 rose to 218,000, above the market consensus of 210,000. Continuing Claims came in at 1.875 million, the highest level in four weeks.
US Pending Home Sales remained flat in November, below the market estimation of a 1% increase.

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

Indian Rupee trades stronger on the day. The USD/INR pair remains stuck in a multi-month-old trading band between 82.80 and 83.40. Technically, the path of least resistance for USD/INR is to the upside as the pair holds above the key 100-period Exponential Moving Average (EMA) on the daily chart. However, the 14-day Relative Strength Index (RSI) turns back below the 50.0 midpoint, suggesting that further decline cannot be ruled out.

Any follow-through selling below the key support level at 83.00 will pave the way to 82.80, portraying the confluence of the lower limit of the trading range and a low of September 12. A decisive break below 82.80 will see a drop to a low of August 11 at 82.60. On the upside, the first upside barrier is seen near the upper boundary of the trading range at 83.40. The next hurdle to watch is the year-to-date (YTD) high of 83.47, en route to the 84.00 psychological mark.

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 Euro.

	USD	EUR	GBP	CAD	AUD	JPY	NZD	CHF
USD		-0.01%	-0.23%	-0.03%	-0.25%	-0.06%	-0.32%	-0.09%
EUR	0.02%		-0.23%	-0.02%	-0.24%	-0.04%	-0.30%	-0.08%
GBP	0.24%	0.22%		0.21%	-0.01%	0.18%	-0.08%	0.16%
CAD	0.03%	0.02%	-0.21%		-0.24%	-0.03%	-0.28%	-0.05%
AUD	0.25%	0.24%	0.02%	0.22%		0.19%	-0.04%	0.18%
JPY	0.06%	0.06%	-0.17%	0.04%	-0.19%		-0.26%	-0.02%
NZD	0.31%	0.30%	0.08%	0.28%	0.04%	0.25%		0.24%
CHF	0.08%	0.08%	-0.16%	0.05%	-0.17%	0.04%	-0.23%

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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