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USD/INR rises on CPI data from India and US

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  • 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) traded 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. RBI remains on standby as it monitors inflation risks. The Indian economy beat estimates in the September quarter, growing 7.6%, making it the fastest growing country. RBI forecasts Indian GDP growth 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 affect Indian government bond yields and the Indian rupee this week. According to CME’s FedWatch tool, market operators have estimated the probability that the FOMC will begin cutting interest rates from March 2024 at nearly 45.6% and have pegged the possibility of rate cuts at 50% 125 basis points (bp) in rates in 2024.

Investors will watch the Indian Consumer Price Index (CPI) for November, industrial production and manufacturing output in India. On the US agenda, the CPI is published on Tuesday. On Wednesday, the focus is on the FOMC meeting, where no changes in interest rates are expected.

Daily Market Overview: Indian Rupee Faces Challenges From Global Headwinds

  • According to the International Monetary Fund (IMF), India’s real gross domestic product (real GDP) is expected 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 housing retreat.
  • 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 of India’s GDP in fiscal 2024 is 7.0%, with growth rates of 6.5% and 6.0% for the third and fourth quarters, respectively.
  • The monthly US Consumer Price Index (CPI) is expected to increase 0.1% from 0.0%, and the annual rate is expected to decrease from 3.2% year-on-year to 3.1%. Annual core CPI, which excludes food and energy price volatility, is expected to remain steady 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) rose by 199,000 in November from 150,000 in October, above the market consensus of 180,000.

Technical Analysis: Indian Rupee maintains a constructive stance

The Indian rupee is trading lower. The USD/INR pair has been trading in a familiar range that has been between 82.80 and 83.40 for the past three months. Technically, the bullish stance on USD/INR remains unchanged as the pair remains above the upside 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 for 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 would lead to a decline to the confluence of the lower boundary of the range and the September 12 low of 82.80. Further down, the next support level to watch is the August 11 low at 82.60.

Frequently Asked Questions About Indian Rupees

Indian Rupee (INR) is one of the currencies most sensitive to external factors. The price of crude oil (the country is heavily dependent 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 direct intervention of the Reserve Bank of India (RBI) in the foreign exchange markets to keep the exchange rate stable as well as the interest rate level set by the RBI are other important factors affecting the Rupee. .

The Reserve Bank of India (RBI) actively intervenes in the foreign exchange markets to maintain a stable exchange rate and help facilitate trade. Also, RBI is trying to keep inflation 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”, where 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.

Macroeconomic factors that affect the value of the rupee include inflation, interest rates, economic growth rate (GDP), balance of trade and inflows of foreign investment. A higher growth rate can lead to more investment abroad, increasing demand for the Rupee. A less negative trade balance will ultimately lead to a stronger Rupee. Higher interest rates, especially real interest rates (interest minus inflation) are also positive for the Rupee. A risk environment may lead to higher inflows of foreign direct and indirect investment (FDI and FII), which also benefits the Rupee.

Higher inflation, especially if it is comparatively higher than other countries, is generally negative for the currency as it reflects a devaluation through oversupply. 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 prompts 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.

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