USD/INR weakens as Fed maintains status quo

Indian Rupee holds mild gains on a decline in US yields, US Dollar.
The Federal Open Market Committee (FOMC) decided to hold the rate steady at its November meeting.
The US Nonfarm Payrolls (NFP) will be closely watched later this week.

Indian Rupee posts modest gains on Thursday on lower US Treasury bond yields and the correction of the US Dollar (USD). The Federal Open Market Committee (FOMC) kept the federal funds rate unchanged at the 5.25-5.50% range at its November meeting on Wednesday, as widely expected. The Greenback edges lower as the markets anticipate that the US rate hike cycle is already over, despite Fed Chair Jerome Powell opening the door for another rate hike.

Nonetheless, the Indian Rupee remains sensitive to risk sentiment and global factors. The escalating tension in the Middle East and higher crude oil prices might contribute to the risk-off environment and cap the upside of the Indian Rupee. Investors will monitor the US weekly Initial Jobless Claims for the week ending October 27 on Thursday. The US Nonfarm Payrolls (NFP) will be in the spotlight on Friday.

Daily Digest Market Movers: Indian Rupee trades firmly amid the multiple challenges

Indian government bond rates dropped in early trading on Thursday, following a dip in US yields.
Traders' attention will turn to debt sales, as India plans to sell its longest-duration bond on Friday, which is expected to see strong demand
The Reserve Bank of India (RBI) has appointed Mr Manoranjan Mishra as Executive Director.
RBI announced the debut of the 'Inflation Expectations Survey of Households' and the 'Consumer Confidence Survey,' which would offer key inputs for the bi-monthly monetary policy.
RBI Governor Shaktikanta Das said GDP growth for the second quarter of FY24 would surpass estimations.
Geopolitical risks are the biggest challenge for India, but RBI Governor Das said India is better placed compared to other countries to deal with any potentially risky situation.
Foreign investors sold $2.74 billion in Indian equities in October, marking the largest monthly sell-off since January 2023.
The Federal Open Market Committee (FOMC) decided to hold the interest rate unchanged at its November meeting on Wednesday, as widely expected.
The probability that the Fed would not raise another rate rose during the press conference.
The 10-year US Treasury yield was close to 4.70%, as the odds of a rate hike in December rate fell to 15%.
The US Private Sector Payroll rose by 113K from 89K in September, below the 150k rise expected.
US JOLTS Jobs Opening climbed to 9.553M, better than the estimation of 9.25M.
The US ISM Manufacturing PMI dropped to 46.7 in October from the previous reading of 49.0, the lowest reading since July 2023.

Technical Analysis: Indian Rupee recovers, upside potential seems limited

The Indian Rupee stages a modest recovery on the day. The USD/INR pair has traded within a familiar range of 83.00–83.35 since September. In the meantime, USD/INR keeps a bullish stance as the pair holds above the key 100- and 200-day Exponential Moving Averages (EMA) on the daily chart.

That being said, the key support level will emerge at the confluence of a low from October 24 and a round level marked at 83.00. A breach below 83.00 will see a drop to a low of September 12 at 82.82. Further south, the next contention level to watch is a low of August 4 at 82.65.

On the upside, the upper boundary of the trading range at 83.35 acts as an immediate upside barrier for the pair. Any decisive follow-through buying above the latter will pave the way to the year-to-date (YTD) highs of 83.45. The additional upside filter is located near a psychological round figure at 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 weakest against the Swiss Franc.

	USD	EUR	GBP	CAD	AUD	JPY	NZD	CHF
USD		-0.10%	0.00%	0.00%	-0.06%	-0.16%	-0.05%	-0.17%
EUR	0.12%		0.10%	0.10%	0.04%	-0.06%	0.05%	-0.04%
GBP	0.00%	-0.11%		-0.01%	-0.06%	-0.16%	-0.05%	-0.17%
CAD	0.01%	-0.10%	0.00%		-0.06%	-0.16%	-0.05%	-0.17%
AUD	0.06%	-0.01%	0.09%	0.08%		-0.06%	0.01%	-0.08%
JPY	0.14%	0.06%	0.15%	0.13%	0.08%		0.08%	-0.02%
NZD	0.08%	-0.05%	0.05%	0.05%	-0.01%	-0.11%		-0.11%
CHF	0.18%	0.07%	0.17%	0.17%	0.08%	0.02%	0.10%

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).

Risk sentiment FAQs

What do the terms"risk-on" and "risk-off" mean when referring to sentiment in financial markets?

In the world of financial jargon the two widely used terms “risk-on” and “risk off'' refer to the level of risk that investors are willing to stomach during the period referenced. In a “risk-on” market, investors are optimistic about the future and more willing to buy risky assets. In a “risk-off” market investors start to ‘play it safe’ because they are worried about the future, and therefore buy less risky assets that are more certain of bringing a return, even if it is relatively modest.

What are the key assets to track to understand risk sentiment dynamics?

Typically, during periods of “risk-on”, stock markets will rise, most commodities – except Gold – will also gain in value, since they benefit from a positive growth outlook. The currencies of nations that are heavy commodity exporters strengthen because of increased demand, and Cryptocurrencies rise. In a “risk-off” market, Bonds go up – especially major government Bonds – Gold shines, and safe-haven currencies such as the Japanese Yen, Swiss Franc and US Dollar all benefit.

Which currencies strengthen when sentiment is "risk-on"?

The Australian Dollar (AUD), the Canadian Dollar (CAD), the New Zealand Dollar (NZD) and minor FX like the Ruble (RUB) and the South African Rand (ZAR), all tend to rise in markets that are “risk-on”. This is because the economies of these currencies are heavily reliant on commodity exports for growth, and commodities tend to rise in price during risk-on periods. This is because investors foresee greater demand for raw materials in the future due to heightened economic activity.

Which currencies strengthen when sentiment is "risk-off"?

The major currencies that tend to rise during periods of “risk-off” are the US Dollar (USD), the Japanese Yen (JPY) and the Swiss Franc (CHF). The US Dollar, because it is the world’s reserve currency, and because in times of crisis investors buy US government debt, which is seen as safe because the largest economy in the world is unlikely to default. The Yen, from increased demand for Japanese government bonds, because a high proportion are held by domestic investors who are unlikely to dump them – even in a crisis. The Swiss Franc, because strict Swiss banking laws offer investors enhanced capital protection.

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