- Indian Rupee trades around a flatline amid the USD weakness.
- Upbeat Indian growth prospects and substantial foreign investor equity inflows might cap the INR’s downside.
- The release of the US Core Personal Consumption Expenditure Price Index (Core PCE) will be the highlight on Friday.
Indian Rupee (INR) trades flat amid the US Dollar (USD) softness. The weaker-than-expected US GDP growth numbers exert some selling pressure on the Greenback and create a headwind for USD/INR. Furthermore, India’s upbeat growth prospects and strong equity inflows from foreign investors might boost the INR in the near term.
According to the International Monetary Fund (IMF), India is estimated to contribute more than 16% of global growth due to economic reforms in key sectors such as infrastructure and digitalization, which have propelled India to be a “star performer” among countries. Additionally, the IMF stated in its annual Article IV consultation report released on Monday that the Indian economy is supported by prudent macroeconomic policies and is on course to become one of the world’s major economies.
Market players will closely watch the US Core Personal Consumption Expenditure Price Index (Core PCE) for November. The Fed’s preferred inflation gauge is estimated to rise 0.2% MoM and 3.3% YoY. This figure could trigger volatility in the market ahead of the holiday season.
Daily Digest Market Movers: Indian Rupee is undermined by elevated inflation and global factors
- The RBI monthly bulletin highlighted that if headline retail inflation is not brought down to the medium-term target of 4% and maintained there, it could underscore the potential impact on growth.
- India’s foreign exchange reserves were $606.9 billion on December 8, 2023, the fourth largest among major foreign exchange reserve-holding countries, increased by $28.4 billion during 2023–24.
- The RBI sold $310 million in the spot foreign currency market in October, according to the monthly Bulletin.
- US Gross Domestic Product (GDP) for the third quarter grew 4.9%, weaker than the market expectation of 5.2% expansion.
- The US Initial Jobless Claims rose 205,000 for the week ending December 16 from the previous week of 202K, below the consensus of 215,000.
- The Philadelphia Fed Manufacturing Index came in at -10.5 in December versus -5.9 prior.
- The Fed Funds futures are pricing in 82% odds of a rate cut at the March meeting, according to the CME FedWatch Tool.
Technical Analysis: Indian Rupee sticks to the longer-term range theme
Indian Rupee trades on a flat note on the day. The USD/INR pair has traded within the trading range of 82.80–83.40 since September. According to the daily chart, further upside in the shorter term looks favorable as the pair holds above the key 100-day Exponential Moving Average (EMA). Nonetheless, an attempt to break below the key EMA cannot be ruled out as the 14-day Relative Strength Index (RSI) remains below the 50.0 midpoint.
The first upside barrier of USD/INR will emerge at the upper boundary of the trading range at 83.40. A breakout above 83.40 will see a rally to the year-to-date (YTD) high of 83.47, followed by the 84.00 psychological mark. On the flip side, the critical support level is located at 83.00 round figure. The additional downside filter to watch is 82.80, portraying the confluence of the lower limit of the trading range and a low of September 12. Further south, the next contention level is seen near a low of August 11 at 82.60.
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 Japanese Yen.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | 0.07% | -0.02% | 0.02% | 0.23% | 0.30% | 0.20% | 0.04% | |
| EUR | -0.07% | -0.08% | -0.06% | 0.16% | 0.21% | 0.13% | -0.02% | |
| GBP | 0.02% | 0.07% | 0.02% | 0.24% | 0.30% | 0.21% | 0.06% | |
| CAD | -0.03% | 0.05% | -0.03% | 0.20% | 0.29% | 0.18% | 0.02% | |
| AUD | -0.24% | -0.16% | -0.24% | -0.21% | 0.03% | -0.04% | -0.19% | |
| JPY | -0.30% | -0.22% | -0.29% | -0.28% | -0.04% | -0.08% | -0.24% | |
| NZD | -0.21% | -0.13% | -0.20% | -0.19% | 0.04% | 0.09% | -0.14% | |
| CHF | -0.07% | 0.03% | -0.06% | -0.02% | 0.19% | 0.23% | 0.15% |
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
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.
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.
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.
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.
Source: https://www.fxstreet.com/news/usd-inr-trades-flat-ahead-of-us-pce-data-202312220347