- Indian Rupee trades with a mild negative bias on Monday.
- The market expects the FOMC to keep rates at 5.25–5.50% unchanged at its January meeting.
- India’s Interim Budget 2024 for fiscal year 2024-25 will be released on Thursday.
Indian Rupee (INR) loses traction on Monday amid the rebound of the US Dollar (USD). INR is expected to have a quiet session on Monday as traders turn to cautious mode ahead of the Federal Open Market Committee (FOMC) policy meeting and the presentation of India's federal budget later in the week.
The US Dollar and US bond yields have benefited from strong economic data in the United States and a decreasing bet on aggressive rate cuts by the Fed. Additionally, the ongoing geopolitical tension in the Middle East helps boost demand for safe-haven currencies like the Greenback and acts as a tailwind for the USD/INR pair.
The Federal Open Market Committee (FOMC) January meeting on Wednesday will be a closely watched event. Investors widely anticipate the FOMC to maintain the status quo. Investors will closely watch the press conference following the meeting. If Fed Chairman Jerome Powell hints at a probable rate cut in March, the Greenback may see some selling pressure.
Indian Finance Minister, Nirmala Sitharaman, will present the Interim Budget 2024 for fiscal year 2024–25 on Thursday as part of the Parliament’s Budget session. Budget 2024 is set to focus on initiatives that will help India maintain its growth trajectory towards a $5 trillion economy.
Daily Digest Market Movers: Indian Rupee remains sensitive to global factors
- India's 10-year benchmark bond yield ended at 7.1760% on Friday, after little movement in the previous two weeks as markets await the government budget announcement.
- The Fiscal Budget 2024–25 will mostly focus on government spending, with no significant changes expected until a new government takes control after the general election.
- The budget is expected to target a narrowing of the fiscal deficit as a percentage of GDP to 5.30% in 2024–25 from 5.90% this fiscal year.
- The Indian government plans to increase welfare spending and lower the budget deficit to 4.5% of GDP by fiscal year 2025–26.
- The US Core Personal Consumption Expenditures Price Index (PCE) for December, the Fed’s preferred inflation gauge, rose by 0.2% on the month from 0.1% in the previous reading and increased by 2.9% on a yearly basis from the previous reading of 3.2%.
- The headline PCE, including volatile food and energy costs, grew by 0.2% for the month and held steady at 2.6% annually.
- US pending home sales came in at 8.3% MoM in December versus -0.3% prior, above the market consensus of 1.5%.
- The US Gross Domestic Product (GDP) came in stronger than expected, expanding at a 3.3% annualized rate in the fourth quarter of 2023, compared to 4.9% in the previous reading.
Technical Analysis: Indian Rupee remains confined in the 82.78–83.45 band
Indian Rupee trades on a softer note on the day. The USD/INR pair oscillates in a two-month-old descending trend channel. Technically, USD/INR is likely to see potential upside as the pair is above the key 100-period Exponential Moving Average (EMA) on the daily chart. It’s worth noting that the 14-day Relative Strength Index (RSI) stands above the 50.0 midline, suggesting the momentum remains biased to the upside.
The immediate resistance level is seen at the upper boundary of the descending trend channel at 83.25. A bullish breakout could take USD/INR to a high of January 2 at 83.35, followed by a 2023 high of 83.47. On the other hand, the potential support level will emerge at the 83.00-83.05 region, portraying the confluence of the 100-period EMA and a psychological level. If USD/INR’s bearish downswing retains its momentum, it could head for a low of December 18 at 82.90, en route to the lower limit of the descending trend channel at 82.72.
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 | -0.02% | -0.12% | -0.07% | -0.20% | -0.19% | -0.14% | -0.14% | |
| EUR | 0.02% | -0.09% | -0.03% | -0.17% | -0.14% | -0.11% | -0.11% | |
| GBP | 0.11% | 0.09% | 0.03% | -0.09% | -0.06% | -0.02% | -0.03% | |
| CAD | 0.08% | 0.04% | -0.05% | -0.13% | -0.10% | -0.06% | -0.06% | |
| AUD | 0.20% | 0.16% | 0.08% | 0.12% | 0.01% | 0.07% | 0.05% | |
| JPY | 0.19% | 0.16% | 0.21% | 0.11% | -0.02% | 0.03% | 0.04% | |
| NZD | 0.13% | 0.12% | 0.02% | 0.06% | -0.07% | -0.06% | -0.01% | |
| CHF | 0.14% | 0.12% | 0.02% | 0.08% | -0.06% | -0.03% | 0.02% |
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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