- Indian Rupee edges higher on Monday on the softer US Dollar (USD).
- A lower US Treasury bond yields and RBI’s potential intervention might limit the INR’s downside.
- Investors will focus on the Federal Open Market Committee (FOMC) meeting and OMO sales.
Indian Rupee (INR) trades modestly higher on Monday on the weaker US Dollar (USD). Meanwhile, a pullback in the US Treasury bond yields and the potential intervention from the Reserve Bank of India (RBI) might cap the further depreciation of INR. Furthermore, market participants will keep an eye on whether the RBI starts selling bonds via open market operations (OMO) this week as liquidity improves. Apart from this, India’s Fiscal Deficit and Infrastructure Output for September will be released on Tuesday.
Investors will closely monitor the Federal Open Market Committee's (FOMC) interest rate decision at the end of its two-day meeting on Wednesday. The markets anticipate the FOMC to maintain rates steady, despite the Fed’s preferred gauge for inflation, the Core Personal Consumption Expenditures Price Index (PCE) remains well above the 2% target rate.
Daily Digest Market Movers: Indian Rupee (INR) stages a modest recovery, USD weakens ahead of the key event
- The US Core Personal Consumption Expenditure Index (PCE) came in at 3.7% YoY in September from the previous figure of 3.8%, matching the market consensus. The headline PCE arrived at 3.4% YoY vs the expectation of 3.4%.
- The Michigan Consumer Confidence Index improved to 63.8, better than the 68 expected.
- UoM inflation expectations for a one-year period are expected to rise by 4.2%, while for a five-year period are expected to stay at 3%.
- Foreign investors sold $1.67 billion in Indian equities in October, which might exert pressure on the Indian Rupee.
- US Q3 GDP expanded at an annualized rate of 4.9%, above the market estimation of 4.2%.
- The Reserve Bank of India (RBI) is expected to meet with top bank officials this week to discuss the banking system's present liquidity condition.
- The RBI's monetary policy committee said the central bank will continue to keep an eye on maintaining inflation at the 4% target.
- RBI estimated that India's GDP would increase at a 6.5% annual rate in the current fiscal year.
- The International Monetary Fund (IMF) revised its forecast growth rate for India to 6.3% in October.
- Growth in India is expected to gain momentum for the remainder of 2023, according to the RBI's October bulletin.
- India’s Wholesale Price Index (WPI) for September, a measure of inflation, fell -0.26% YoY from the previous reading of 0.52%, worse than the market expectation of 0.50%.
Technical Analysis: The Indian Rupee trades firmly in a familiar trading range
The Indian Rupee moves slightly higher on the day. The USD/INR pair trades within a range of 83.00-83.35. The upward bias of USD/INR remains intact as the pair holds above the 100- and 200-day Exponential Moving Averages (EMA) on the daily chart.
On the upside, any decisive follow-through buying above 83.35 will pave the way to year-to-date (YTD) highs of 83.45. The additional upside filter to watch is a psychological round mark at 84.00. On the other hand, the critical support level will emerge at 83.00, portraying the confluence of a low of October 20 and a round figure. A break below 83.00 could see a drop to 82.82 (low of September 12), followed by 82.65 (low of August 4).
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 weakest against the Australian Dollar.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | 0.25% | 0.36% | 1.10% | -0.54% | -0.20% | 0.01% | 1.03% | |
| EUR | -0.25% | 0.11% | 0.84% | -0.79% | -0.45% | -0.23% | 0.79% | |
| GBP | -0.35% | -0.13% | 0.74% | -0.92% | -0.56% | -0.35% | 0.68% | |
| CAD | -1.11% | -0.86% | -0.77% | -1.66% | -1.30% | -1.09% | -0.06% | |
| AUD | 0.55% | 0.82% | 0.93% | 1.64% | 0.38% | 0.57% | 1.59% | |
| JPY | 0.20% | 0.44% | 0.53% | 1.28% | -0.38% | 0.20% | 1.23% | |
| NZD | 0.00% | 0.24% | 0.35% | 1.08% | -0.55% | -0.20% | 1.04% | |
| CHF | -1.05% | -0.85% | -0.69% | 0.03% | -1.62% | -1.25% | -1.05% |
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).
Indian Rupee FAQs
What are the key factors driving the Indian Rupee?
The Indian Rupee (INR) is one of the most sensitive currencies to external factors. The price of Crude Oil (the country is highly dependent on imported Oil), the value of the US Dollar – most trade is conducted in USD – and the level of foreign investment, are all influential. Direct intervention by the Reserve Bank of India (RBI) in FX markets to keep the exchange rate stable, as well as the level of interest rates set by the RBI, are further major influencing factors on the Rupee.
How do the decisions of the Reserve Bank of India impact the Indian Rupee?
The Reserve Bank of India (RBI) actively intervenes in forex markets to maintain a stable exchange rate, to help facilitate trade. In addition, the RBI tries to maintain the inflation rate at its 4% target by adjusting interest rates. Higher interest rates usually strengthen the Rupee. This is due to the role of the ‘carry trade’ in which investors borrow in countries with lower interest rates so as to place their money in countries’ offering relatively higher interest rates and profit from the difference.
What macroeconomic factors influence the value of the Indian Rupee?
Macroeconomic factors that influence the value of the Rupee include inflation, interest rates, the economic growth rate (GDP), the balance of trade, and inflows from foreign investment. A higher growth rate can lead to more overseas investment, pushing up demand for the Rupee. A less negative balance of trade will eventually lead to a stronger Rupee. Higher interest rates, especially real rates (interest rates less inflation) are also positive for the Rupee. A risk-on environment can lead to greater inflows of Foreign Direct and Indirect Investment (FDI and FII), which also benefit the Rupee.
How does inflation impact the Indian Rupee?
Higher inflation, particularly, if it is comparatively higher than India’s peers, is generally negative for the currency as it reflects devaluation through oversupply. Inflation also increases the cost of exports, leading to more Rupees being sold to purchase foreign imports, which is Rupee-negative. At the same time, higher inflation usually leads to the Reserve Bank of India (RBI) raising interest rates and this can be positive for the Rupee, due to increased demand from international investors. The opposite effect is true of lower inflation.
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