- The Indian Rupee could appreciate as US data reinforces the likelihood of an aggressive Fed rate cut.
- The CME’s FedWatch tool suggests the probability of a 50 basis point rate cut has risen sharply to 41.0%.
- India’s Consumer Price Index rose 3.65% in August, compared with 3.55% expected and 3.54% in July.
The USD/INR pair held its ground on Friday after losses posted in the previous session as recent US economic data reinforced the odds of an aggressive rate cut by the Federal Reserve (Fed) next week.
According to the CME’s FedWatch tool, markets are fully pricing in at least a 25 basis point (bps) rate cut by the Federal Reserve at its September meeting. The probability of a 50 bps rate cut has risen sharply to 41.0%, from 14.0% the day before.
India’s August retail inflation was slightly higher than economists’ expectations due to a sharp rise in vegetable prices, according to government data released by Reuters on Thursday. The Consumer Price Index (CPI) rose 3.65% in August, compared with 3.55% expected and 3.54% in July.
On Thursday, Reuters quoted five traders as saying that the Reserve Bank of India (RBI) may have intervened in open markets to prevent the Indian Rupee (INR) from weakening beyond the 84.00 level. Traders are awaiting the release of the government trade deficit and foreign exchange reserves, scheduled for Friday.
Daily Market Movers Roundup: Indian Rupee could hold its ground on improving risk sentiment
- Reserve Bank of India Governor Shaktikanta Das told the Bretton Woods Committee’s annual Future of Finance Forum on Friday that India’s growth potential is 7.5% or more, which is slightly above the central bank’s annual forecast for 2024 of 7.2%, according to Reuters.
- The US Producer Price Index (PPI) rose 0.2% on a monthly basis in August, beating the expected 0.1% increase and 0.0% previously. Meanwhile, the core PPI accelerated to 0.3% on a monthly basis, versus the expected 0.2% increase and 0.2% contraction in July.
- US initial jobless claims rose slightly in the week ending September 6, rising to the expected 230K from the previous reading of 228K.
- India’s industrial output rose 4.8% in July, slightly above market expectations of 4.7%, after growing 4.2% in the previous month.
- India is considering relaxing investment rules for Chinese companies to boost its manufacturing sector. In addition, the country has eased visa issuance for Chinese citizens to support local manufacturing. India’s trade deficit with China has nearly doubled since 2020, according to a Reuters report.
- The US Consumer Price Index fell to 2.5% year-on-year in August, from the previous reading of 2.9%. The index missed the expected reading of 2.6%. Meanwhile, the headline CPI came in at 0.2% month-on-month. The core CPI excluding food and energy remained unchanged at 3.2% year-on-year. On a monthly basis, the core CPI rose to 0.3% from the previous reading of 0.2%.
- The first US presidential debate between former President Donald Trump and Democratic candidate Kamala Harris in Pennsylvania was won by Harris, according to a CNN poll. The debate began with a critical focus on the economy, inflation and economic policies.
Technical Analysis: USD/INR breaks below the symmetrical triangle, hovering below 84.00
The USD/INR pair is trading around 83.90 on Friday. The daily chart analysis shows that the USD/INR pair has broken below the symmetrical triangle pattern, indicating the emergence of a bearish bias. However, the 14-day Relative Strength Index (RSI) remains slightly above the 50 level, suggesting that a retracement test of the triangle cannot be ruled out.
On the downside, the USD/INR pair could retest its six-week low around 83.72, followed by the psychological level of 83.50.
In terms of resistance, the nine-day exponential moving average (EMA) at 83.91 could serve as an immediate barrier, aligning with the lower boundary of the symmetrical triangle near 83.95.
Further resistance appears at the upper boundary of the symmetrical triangle near the level of 84.00. A break above this point could propel the pair towards the all-time high of 84.14, recorded on August 5.
USD/INR: Daily Chart
Indian Rupee FAQs
The Indian Rupee (INR) is one of the most sensitive currencies 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. Direct intervention by the Reserve Bank of India (RBI) 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 that influence 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. In addition, the RBI attempts to keep the inflation rate at its target of 4% by adjusting interest rates. Higher interest rates typically strengthen the Rupee. This is due to the role of the “carry trade,” where investors borrow from countries with lower interest rates to place their money in countries offering relatively higher interest rates and profit from the difference.
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 higher overseas investment, 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-off environment can lead to higher foreign direct and indirect investment (FDI and FII) inflows, which also benefit the 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
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
