- Indian Rupee edges lower on the firmer US Dollar.
- The Reserve Bank of India (RBI) will likely maintain its policy stance in its December meeting.
- US weekly Initial Jobless Claims will be due later on Thursday.
Indian Rupee (INR) trades soft on Thursday amid renewed US Dollar (USD) demand. Nonetheless, the markets anticipate that the US interest rate may have peaked and the Federal Reserve (Fed) will ease policy rates next year. The possibility of a Fed rate cut in the middle of 2024 could drag the US Treasury bond yields lower, which benefits the INR. The Reserve Bank of India (RBI) could maintain its policy stance in its December meeting after October’s inflation data came within the central bank’s 2-6% target for the second consecutive month.
Investors will monitor the US weekly Initial Jobless Claims due later on Thursday. In the meantime, the Indian Rupee remains vulnerable to higher crude prices as India is the world’s third-biggest oil consumer.
Daily Digest Market Movers: Indian Rupee remains sensitive to the spike in oil prices
- India’s trade deficit narrowed to $31.46B in October from $19.37B in September.
- India’s Exports grew by 6.2% to $33.57B in October from $34.47B in September while Imports stood at $65.03B from $53.84B in the previous month. The rise in global crude oil prices increased the country’s import cost.
- India’s headline retail price inflation declined to 4.9% in October versus 5% prior, a four-month low.
- India’s Wholesale Price Index (WPI) inflation arrived at -0.52% from the previous reading of -0.26%, below the market consensus of -0.20%.
- India’s Consumer Price Index (CPI) rose by 4.87% YoY in October from 5.02% in September, above the market expectation of 4.80%.
- The Reserve Bank of India (RBI) is likely to maintain its hawkish stance at its December monetary policy meeting.
- The US Producer Price Index (PPI) dropped by 0.5% MoM in October from a 0.4% rise in September. The annual PPI figure came in at 1.3% in the same period from 2.2% previously.
- US Retail Sales declined by 0.1% in October versus a 0.9% increase prior, against expectations of a fall of 0.3%.
- Fed fund futures are now pricing no further US rate hikes in this cycle, and have priced in 50% odds of a rate cut by May 2024.
Technical Analysis: The Indian Rupee’s bearish bias stays intact
The Indian Rupee trades on a softer note on the day. The USD/INR pair has traded within the wider trading range of 82.80-83.35 since September. According to the daily chart, the USD/INR maintains a bullish outlook as the pair holds above the key 100-day Exponential Moving Average (EMA).
The immediate resistance level for the pair is seen near the upper boundary of the trading range of 83.35. Any follow-through buying will see a rally to a year-to-date (YTD) high of 83.47. Further north, the next target to watch is a psychological round figure at 84.00.
On the downside, a low of September 12 at 82.80 acts as an initial support level for USD/INR. A decisive break below 82.80 will see losses extend to a low of August 11 at 82.60. The next contention level is located near a low of August 24 at 82.37.
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 Swiss Franc.
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 economy FAQs
The Indian economy has averaged a growth rate of 6.13% between 2006 and 2023, which makes it one of the fastest growing in the world. India’s high growth has attracted a lot of foreign investment. This includes Foreign Direct Investment (FDI) into physical projects and Foreign Indirect Investment (FII) by foreign funds into Indian financial markets. The greater the level of investment, the higher the demand for the Rupee (INR). Fluctuations in Dollar-demand from Indian importers also impact INR.
India has to import a great deal of its Oil and gasoline so the price of Oil can have a direct impact on the Rupee. Oil is mostly traded in US Dollars (USD) on international markets so if the price of Oil rises, aggregate demand for USD increases and Indian importers have to sell more Rupees to meet that demand, which is depreciative for the Rupee.
Inflation has a complex effect on the Rupee. Ultimately it indicates an increase in money supply which reduces the Rupee’s overall value. Yet if it rises above the Reserve Bank of India’s (RBI) 4% target, the RBI will raise interest rates to bring it down by reducing credit. Higher interest rates, especially real rates (the difference between interest rates and inflation) strengthen the Rupee. They make India a more profitable place for international investors to park their money. A fall in inflation can be supportive of the Rupee. At the same time lower interest rates can have a depreciatory effect on the Rupee.
India has run a trade deficit for most of its recent history, indicating its imports outweigh its exports. Since the majority of international trade takes place in US Dollars, there are times – due to seasonal demand or order glut – where the high volume of imports leads to significant US Dollar- demand. During these periods the Rupee can weaken as it is heavily sold to meet the demand for Dollars. When markets experience increased volatility, the demand for US Dollars can also shoot up with a similarly negative effect on the Rupee.