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USD/INR gains traction, focus on US jobless claims

  • The Indian Rupee loses traction amid renewed buying of the US Dollar.
  • Markets anticipate that the Reserve Bank of India (RBI) will maintain the status quo on the repo rate, leaving it unchanged at 6.5%.
  • Investors await Thursday’s US weekly jobless claims, ahead of the RBI rate decision and US non-farm payrolls.

The Indian Rupee (INR) continues to trade negative on Thursday amid renewed demand for the US Dollar (USD). The three-day monetary policy meeting of the Reserve Bank of India (RBI) began on Wednesday. RBI Governor Shaktikanta Das will announce the decision of the Monetary Policy Committee (MPC) on Friday.

Markets widely anticipate that the RBI will keep the interest rate unchanged at 6.50% for the fifth consecutive monetary policy meeting. High inflation above the 4% target, volatile crude oil prices and concerns about El Niño and agricultural production will keep the central bank on hold.

Investors will be watching weekly US jobless claims, which will be released on Thursday. The highlights of this week will be the Reserve Bank of India’s interest rate decision and US employment data, including non-farm payrolls and the unemployment rate on Friday. November nonfarm payrolls are estimated to increase by 185,000 positions, while the unemployment rate will remain at 3.9%.

Daily Market Summary: Indian Rupee weakens on slowing service sector growth

  • Indian stocks have seen inflows of more than $3 billion in December, according to the National Securities Depository.
  • India is on track to become the world’s third-largest economy by 2030, according to the latest report by S&P Global Ratings.
  • The value of India’s stock markets surpassed $4 trillion for the first time, boosted by moderating oil prices, resilient domestic macroeconomic data, renewed foreign capital inflows and growing optimism about the continuity of policies in 2024 following the results of the state assembly elections.
  • S&P Global India Services PMI fell to 56.9 in November from 58.4 in October, below the market consensus of 58.0.
  • ADP private payrolls rose 103,000 in November from 106,000 in October, below the market estimate of 130,000.
  • Analysts anticipate that the tightening cycle is over and that the Fed will keep interest rates on hold until at least July, later than previously thought, according to a Reuters poll.

Technical Analysis: Indian Rupee Outlook Remains Constructive

The Indian Rupee weakens on the day. The USD/INR pair remains in a range known for several months of 82.80-83.40. On the daily chart, USD/INR is maintaining an uptrend as the pair remains above the key 100-day EMA. The bullish momentum is supported by the 14-day Relative Strength Index (RSI), which remains above the midpoint of 50.0.

The first bullish barrier will emerge at the upper limit of the operating range of 83.40. The additional bullish filter to watch is the yearly high at 83.47. Higher up, the next hurdle is at the psychological level at 84.00.

On the downside, strong support lies at the psychological level of 83.00. A decisive break below that level will pave the way towards 82.80, which represents the confluence of the lower limit of the range and the September 12 low. The next support is at 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

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