untitled design

USD/INR holds firm, focus on US jobless claims

  • The Indian Rupee gives way to the strength of the US Dollar.
  • The Reserve Bank of India is likely to maintain its monetary policy at its December meeting.
  • Weekly US jobless claims will be released on Thursday.

The Indian Rupee (INR) is trading lower on Thursday amid renewed demand for the US Dollar (USD). However, markets anticipate that the US interest rate may have peaked and the Federal Reserve (Fed) will ease monetary policy rates next year. The possibility of a Fed rate cut in mid-2024 could drag down US Treasury yields, benefiting the INR. The Reserve Bank of India (RBI) could maintain its monetary policy at its December meeting, after October inflation data was within the central bank’s 2%-6% target for the second month consecutive.

Investors will be watching weekly U.S. jobless claims, which will be released on Thursday. Meanwhile, the Indian rupee remains vulnerable to rising crude oil prices as India is the world’s third largest oil consumer.

Daily Market Summary: Indian Rupee Remains Sensitive to Rally in Oil Prices

  • India’s trade deficit narrowed to $31.46 billion in October, down from $19.37 billion in September.
  • India’s exports grew 6.2% to $33.57 billion in October, up from $34.47 billion in September, while imports stood at $65.03 billion, up from $53.84 billion in the previous month. Rising global crude oil prices increased the cost of the country’s imports.
  • Headline retail price inflation in India fell to 4.9% in October, down from 5% previously, the lowest level in four months.
  • India’s Wholesale Price Index (WPI) inflation stood at -0.52%, up from -0.26% previously, below the markets consensus of -0.20%.
  • India’s Consumer Price Index (CPI) rose 4.87% year-on-year in October, from 5.02% in September, above the market forecast of 4.80%.
  • The Reserve Bank of India (RBI) is likely to maintain its hawkish stance at its December monetary policy meeting.
  • The US Producer Price Index (PPI) fell 0.5% month-on-month in October, compared to an increase of 0.4% in September. The annual PPI stood at 1.3% in the same period, compared to 2.2% previously.
  • US retail sales fell 0.1% in October versus a previous 0.9% increase and expectations for a 0.3% decline.
  • Fed funds futures do not forecast any further rate hikes this cycle, and the odds of a rate cut in May 2024 are at 50%.

Technical Analysis: Indian Rupee bearish stance remains intact

The Indian Rupee is moving with a softer tone on the day. The USD/INR pair has traded within the trading range of 82.80-83.35 since September. On the daily chart, USD/INR remains bullish as the pair remains above the 100-day EMA.

The immediate resistance level for the pair is seen near the upper limit of the trading range of 83.35. If buying occurs, there will be a recovery to 83.47, the highest level so far this year. Higher up, the next target to watch is the psychological round level at 84.00.

On the downside, the September 12 low at 82.80 acts as initial support level for USD/INR. A decisive break below that level will see losses extend to the August 11 low at 82.60. The next support level is near 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

You may also like

Get the latest

Stay Informed: Get the Latest Updates and Insights


Most popular