- Indian Rupee (INR) loses ground in Tuesday’s Asian session.
- Renewed USD demand, higher oil prices undermine the INR; growing expectation of deeper Fed rate cut might cap its downside.
- Indian WPI Inflation and US Retail Sales data will be the highlights later on Tuesday.
The Indian Rupee (INR) edges lower on Tuesday, snapping the three-day winning streak. The robust US Dollar (USD) demand from local importers, particularly oil companies, weighs on the local currency. Additionally, the rebound in crude oil prices might limit the INR’s upside as India is the third-largest oil consumer after the United States (US) and China.
Nonetheless, the firmer bets on the jumbo Federal Reserve (Fed) rate cut, weaker Greenback and significant foreign fund inflows into Indian equities might support the appreciation of the INR. Investors will keep an eye on the Indian Wholesale Price Index (WPI) Inflation, Food and Fuel reports for August on Tuesday. On the US docket, the Retail Sales will be published, which is expected to rise 0.2% MoM in August versus a 1.0% rise in July.
Daily Digest Market Movers: Indian Rupee seems vulnerable as traders await the key events
- The Indian Wholesale Price Index (WPI) Inflation is expected to ease to 1.80% YoY in August from 2.04% in July.
- India's economy is estimated to grow at a rate of around 7.5% or more, according to Reserve Bank of India (RBI) Governor Shaktikanta Das. This projection surpasses the RBI's current forecast of 7.2% for the ongoing financial year.
- The US NY Empire State Manufacturing Index improved to 11.5 in September from a decline of 4.7 in August, better than the estimation of a 3.9% decrease.
- Fed fund futures show investors are increasingly betting the US Fed will cut by 50 basis points (bps) instead of 25 bps. Traders are now pricing in a nearly 67% chance of a reduction of 50 bps, up from 50% on Friday, according to the CME FedWatch Tool.
- "We had favoured a 50bp cut, but the latest job and inflation numbers suggest officials will more likely vote in favour of 25bps”, said ING Bank analysts.
Technical Analysis: USD/INR still maintains constructive view
The Indian Rupee weakens on the day. According to the daily chart, the bullish outlook of the USD/INR pair remains intact as the price holds above the key 100-day Exponential Moving Average (EMA). However, further downside cannot be ruled out as the 14-day Relative Strength Index (RSI) stands in the bearish zone below the midline.
A decisive break above the 83.90-84.00 region, support-turned resistance level and psychological mark, could spur another bounce back to the immediate upside barrier around 84.50.
On the downside, the low of September 16 at 83.82 acts as an initial support level for USD/INR. Any follow-through selling below this level will expose the 100-day EMA at 83.64.
RBI FAQs
The role of the Reserve Bank of India (RBI), in its own words, is '..to maintain price stability while keeping in mind the objective of growth.” This involves maintaining the inflation rate at a stable 4% level primarily using the tool of interest rates. The RBI also maintains the exchange rate at a level that will not cause excess volatility and problems for exporters and importers, since India’s economy is heavily reliant on foreign trade, especially Oil.
The RBI formally meets at six bi-monthly meetings a year to discuss its monetary policy and, if necessary, adjust interest rates. When inflation is too high (above its 4% target), the RBI will normally raise interest rates to deter borrowing and spending, which can support the Rupee (INR). If inflation falls too far below target, the RBI might cut rates to encourage more lending, which can be negative for INR.
Due to the importance of trade to the economy, the Reserve Bank of India (RBI) actively intervenes in FX markets to maintain the exchange rate within a limited range. It does this to ensure Indian importers and exporters are not exposed to unnecessary currency risk during periods of FX volatility. The RBI buys and sells Rupees in the spot market at key levels, and uses derivatives to hedge its positions.
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