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USD/INR clings to slight losses ahead of Indian GDP, US PCE data

  • The Indian Rupee appreciates amid the weakening of the Dollar.
  • India’s GDP is expected to grow 6.8% year-on-year in the July-September quarter.
  • India’s second quarter quarterly GDP and the US underlying Personal Consumption Expenditure (PCE) Price Index will be released on Thursday.

The Indian Rupee (INR) rises on Thursday as dovish comments from Federal Reserve (Fed) officials weigh on demand for the US Dollar. Asia’s third-largest economy grew 7.8% in the first quarter of the current fiscal year. Indian GDP figures for the second quarter are scheduled to be released later in the day and are expected to grow 6.8% year-on-year in the July-September quarter.

Separately, Economic Affairs Secretary Ajay Seth on Wednesday expressed an optimistic view on the Indian economy, stating that the country is showing momentum and the growth rate in the second quarter is likely to be good. The Budget 2023-24 proposes to reduce the fiscal deficit to 5.9% of GDP from 6.4% in the previous year. The Government aims to reduce the budget deficit to less than 4.5% of GDP by 2025-26.

Investors will closely monitor India’s quarterly Gross Domestic Product (GDP) for the second quarter, which is scheduled to be released on Thursday. Furthermore, the development of the last phase of state elections in India remains the focus, as a change in government could lead to policy changes that could affect investors. In the United States, the underlying Personal Consumption Expenditure (PCE) Price Index for October will be published, and this report could influence expectations of the Fed’s upcoming decisions.

Daily Market Summary: Indian Rupee Strengthens Amid Challenges

  • The Indian economy is expected to grow 6.8% year-on-year in the July-September quarter, according to a Reuters poll.
  • Analysts expect India’s gross domestic product to expand more than 6.0% next year, which would make it the fastest-growing major economy.
  • The Reserve Bank of India (RBI) forecasts a growth of 6.5% for the period from July to September.
  • India’s domestic demand remains the main driver of economic activity as external demand remains fragile.
  • Annualized US Gross Domestic Product grew 5.2% in the third quarter from the previous reading of 4.9%, above the market consensus of 5.0%.
  • The October core Personal Consumption Expenditure (PCE) Price Index is expected to decline to 0.2% MoM and 3.5% YoY.
  • Federal Reserve (Fed) Governor Michelle Bowman stated that she wanted to keep alive the possibility of further rate hikes, raising concerns about the longevity of inflationary pressure.
  • Fed Governor Christopher Waller stated that the Fed will not need to raise rates further and could begin to cut them if inflation continues to decline in the next three to five months.

Technical Analysis: Indian Rupee keeps positive outlook intact

The Indian Rupee is trading strongly today. The USD/INR pair has traded in a known range of 82.80-83.40 since September. According to the daily chart, the continuation of the bullish bias remains valid as the pair remains above the upward-sloping 100-day EMA. Bullish continuation appears favorable, supported by the 14-day Relative Strength Index (RSI) remaining above the midline of 50.0.

The immediate target for the bulls to beat will emerge at the upper limit of the range at 83.40. The additional bullish filter to watch is the yearly high at 83.47, and finally the round level of 84.00. On the other hand, the 83.00 level offers support to USD/INR. A decisive break below that level will cause a decline to the confluence of the lower limit of the range and the September 12 low at 82.80, followed by an August 11 low at 82.60.

Dollar Quote in the last 7 days

The following table shows the percentage change of the United States Dollar (USD) against major currencies in the last 7 days.

USD EUR GBP CAD AUD JPY NZD CHF
USD -0.83% -1.74% -0.86% -1.61% -1.71% -2.57% -1.35%
EUR 0.82% -0.90% -0.03% -0.78% -0.87% -1.72% -0.51%
GBP 1.68% 0.87% 0.85% 0.11% 0.02% -0.83% 0.37%
CAD 0.85% 0.04% -0.87% -0.74% -0.83% -1.69% -0.48%
AUD 1.58% 0.76% -0.12% 0.74% -0.09% -0.94% 0.26%
JPY 1.68% 0.86% -0.03% 0.84% 0.08% -0.85% 0.36%
NZD 2.50% 1.69% 0.81% 1.64% 0.93% 0.84% 1.19%
CHF 1.33% 0.51% -0.39% 0.49% -0.26% -0.35% -1.20%

The heat map shows the percentage changes of the major currencies against each other. The base currency is chosen in the left column, while the quote currency is chosen in the top row. For example, if you choose the euro in the left column and scroll down the horizontal line to the Japanese yen, the percentage change shown in the box will represent EUR (base)/JPY (quote).

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

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