- The Indian Rupee gives way to the strength of the US Dollar.
- Indian government bond yields and the Indian Rupee will be influenced by domestic and US inflation data this week.
- Investors will keep an eye on Indian and US CPI data ahead of the FOMC meeting.
The Indian Rupee (INR) is trading on a negative note on Tuesday amid renewed demand for the US Dollar (USD). The Reserve Bank of India (RBI) kept the benchmark repo rate unchanged at 6.50%, as expected last week. The RBI remains on standby as it keeps an eye on inflationary risks. The Indian economy beat estimates in the September quarter, expanding 7.6%, making it the fastest growing country. The RBI forecasts an Indian GDP growth rate of 7.0% in FY2024.
Domestic and US data on inflation, as well as the Federal Open Market Committee’s (FOMC) decision on interest rates, will influence Indian government bond yields and the Indian Rupee this week. According to the CME’s FedWatch tool, market operators have valued the probability that the FOMC will begin cutting rates from March 2024 at almost 45.6% and have valued the possibility of rate cuts at 50%. 125 basis points (bp) in rates in 2024.
Investors will be watching the Indian Consumer Price Index (CPI) for November, industrial production and manufacturing production in India. On the US agenda, the CPI will be published on Tuesday. On Wednesday, the focus will be on the FOMC meeting, for which no changes in interest rates are expected.
Daily Market Summary: Indian Rupee Faces Challenges from Global Headwinds
- According to the International Monetary Fund (IMF), India’s real Gross Domestic Product (real GDP) is projected to grow by more than 6.0% in both 2023 and 2024.
- Prime Minister Narendra Modi has set an ambitious goal of propelling India into a $5 trillion economy in the next five years.
- The Monetary Policy Committee of the Reserve Bank of India (RBI) decided to keep the repo rate unchanged at 6.50% and continue to focus on the withdrawal of accommodation.
- The RBI forecast retail inflation in India at 5.4% in FY24, with 5.6% in the third quarter and 5.2% in the fourth.
- The current projected growth rate for India’s GDP in fiscal 2024 is 7.0%, with growth rates of 6.5% and 6.0% expected for the third and fourth quarters, respectively.
- The monthly US Consumer Price Index (CPI) is expected to rise 0.1% from 0.0%, and the annual rate is estimated to decline from 3.2% year-on-year to 3.1%. The annual core CPI, which excludes food and energy price volatility, is expected to remain stable at 4.0%.
- Markets expect the FOMC to keep interest rates at 5.25%-5.50% for the third time in a row on Wednesday.
- US Nonfarm Payrolls (NFP) increased by 199,000 in November from 150,000 in October, above the market consensus of 180,000.
Technical Analysis: Indian Rupee Maintains Constructive Stance
The Indian rupee is trading lower. The USD/INR pair has traded in a known range that has remained for the last three months between 82.80 and 83.40. Technically, the bullish stance on USD/INR remains unchanged as the pair remains above the upward-sloping 100-day EMA on the daily chart. Meanwhile, the 14-day Relative Strength Index (RSI) remains above the 50 level, adding to the bullish momentum.
A convincing break above the upper limit of the range at 83.40 will pave the way to the next bullish barrier at the yearly high of 83.47, followed by the psychological round level of 84.00. On the opposite side, a break below the key support level at the round level of 83.00 will lead to a decline to the confluence of the lower limit of the range and the September 12 low at 82.80. Further down, the next support level to watch is the August 11 low at 82.60.
Indian Rupee FAQ
What are the key factors driving the Indian Rupee?
The Indian Rupee (INR) is one of the currencies most sensitive to external factors. The price of crude oil (the country relies heavily on imported oil), the value of the US Dollar (most trade is done in US dollars), and the level of foreign investment are all influential factors. The Reserve Bank of India’s (RBI) direct intervention in the foreign exchange markets to keep the exchange rate stable as well as the level of interest rates set by the RBI are other important factors influencing the Rupee. .
How do the decisions of the Reserve Bank of India affect the Indian Rupee?
The Reserve Bank of India (RBI) actively intervenes in foreign exchange markets to maintain a stable exchange rate and help facilitate trade. Furthermore, the RBI tries to keep the inflation rate at its target of 4% by adjusting interest rates. Higher interest rates tend to strengthen the Rupee. This is due to the role of the “carry trade”, in which investors borrow in countries with lower interest rates to park their money in countries that offer 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, economic growth rate (GDP), trade balance and foreign investment inflows. A higher growth rate can lead to more investment abroad, increasing demand for the Rupee. A less negative trade balance will eventually lead to a stronger Rupee. Higher interest rates, especially real rates (interest rates minus inflation) are also positive for the Rupee. A risk environment can lead to higher inflows of foreign direct and indirect investment (FDI and FII), which also benefit the Rupee.
How does inflation affect the Indian Rupee?
Higher inflation, particularly if it is comparatively higher than other countries, is generally negative for the currency as it reflects a devaluation through excess supply. Inflation also increases the cost of exports, leading to more rupees being sold to buy foreign imports, which is negative for the Indian Rupee. At the same time, higher inflation usually leads the Reserve Bank of India (RBI) to raise interest rates and this can be positive for the Rupee, due to increased demand from international investors. The opposite effect applies to lower inflation.
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
