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USD/INR gains momentum, foo on US housing data

  • Indian Rupee loses traction amid mixed sentiment.
  • Economists noted that GDP growth in July-September will be higher than the Reserve Bank of India’s forecast of 6.5%.
  • Construction permits and housing starts in the United States will be published on Friday.

The Indian Rupee (INR) is moving cautiously. According to the Reserve Bank of India in its monthly bulletin, festival-related demand in India has been “buzzing” and consumer sentiment is optimistic. However, there are “miles to go” on the inflation front, and India is “not out of the woods yet.”

There is a broad consensus, supported by economists, that Indian GDP growth in the third quarter of 2023-24 will exceed the central bank’s forecasts. However, the Indian rupee remains vulnerable to rising crude oil prices and US Treasury bond yields. Later on Friday, market traders will monitor US housing data, including building permits and housing starts.

Daily Market Summary: Indian Rupee Remains Sensitive to Global Factors

  • India’s GDP growth momentum is expected to be sequentially higher in the third quarter of 2023-24, with festival demand remaining buoyant, according to a report in the Reserve Bank of India’s monthly bulletin.
  • The RBI expects the Indian economy to register a GDP growth rate of 6.5% in 2023-24.
  • The Reserve Bank of India (RBI) is likely to keep the policy rate unchanged at its next policy meeting, scheduled for December 6-8.
  • India’s trade deficit widened to $31.46 billion in October, up from $19.37 billion the previous month, due to a sharp rise in gold imports during the festival season.
  • Indian exports grew 6.2% to $33.57 billion in October, up from $34.47 billion in September. Imports amounted to 65.03 billion dollars, compared to 53.84 billion the previous month.
  • Headline retail price inflation in India fell to 4.9% in October from 5% the previous month, the lowest level in four months.
  • India’s Wholesale Price Index (WPPI) inflation stood at -0.52%, up from -0.26% previously, worse than the market forecast of -0.20%.
  • India’s Consumer Price Index (CPI) grew 4.87% year-on-year in October from 5.02% previously, beating the market consensus of 4.80%.
  • The weekly number of initial jobless claims in the United States reached its highest level in almost three months, with an increase of 231,000 applications. Applications for continued unemployment benefits reached the highest level since 2022.
  • US industrial production fell 0.6% month-on-month in October from a 0.1% rise in the previous month, missing the market estimate.
  • Fed funds futures do not foresee any further rate hikes in this cycle and expect a rate cut in mid-2024.

Technical Analysis: Indian Rupee remains bearish

The Indian Rupee is falling today. The USD/INR pair has traded between 82.80 and 83.35 in a wider trading range since September. Technically, USD/INR maintains a bullish stance as the pair remains above the 100-day EMA on the daily chart.

That being said, the upper limit of the range at 83.35 acts as an immediate resistance level for the pair. The continuation of the uptrend could lead to the recovery to 83.47, the highest level so far this year. A decisive breakout would expose the round 84.00 level.

On the other hand, the initial support level for USD/INR lies near the September 12 low at 82.80. If sellers push prices below that level, the next contention to watch is the August 11 low at 82.60, followed by the August 24 low at 82.37.

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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