- Indian Rupee drifts lower on the higher US Dollar and bond yields.
- The Reserve Bank of India’s Das said food inflation will be at the top of the central bank’s agenda.
- Investors await US Retail Sales ahead of the RBI’s Das speech at the World Economic Forum Annual Meeting 2024 on Thursday.
Indian Rupee (INR) trades on a softer note on Wednesday amid the extended rally of the US Dollar (USD). Nonetheless, traders place their bets that the INR will break out of its trading range and rally this year as India gains the confidence of foreign exchange investors who believe the Indian Rupee could trample the Greenback.
The Reserve Bank of India (RBI) Governor Shaktikanta Das said at the World Economic Forum (WEF) in Davos on Tuesday that food inflation can be volatile and will be on the top of the central bank’s agenda. WEF president Borge Brende stated that he sees India’s growth story intact and running amid geopolitical tensions and a weak investment cycle.
Looking ahead, investors will keep an eye on US Retail Sales on Wednesday, which is estimated to show an increase of 0.4% MoM. On Thursday, the RBI governor Shaktikanta Das will share insights on key challenges and opportunities and his view on monetary policy at the World Economic Forum Annual Meeting 2024 at Davos.
Daily Digest Market Movers: Indian Rupee remains resilient amid geopolitical tensions
- The Reserve Bank of India (RBI) governor Shaktikanta Das said India’s economic growth prospects remain robust and retail inflation is slowly moderating towards the 4% target.
- India’s December WPI inflation rose by 0.73% YoY from the previous reading of 0.26%, worse than the market expectation of 0.90%.
- India’s Wholesale Price Food Index arrived at 5.39% YoY in December.
- The Indian economy is predicted to grow by 8% this year, according to World Economic Forum (WEF) president Borge Brende.
- WEF’s Brende expects India will reach a $10 trillion economy, at least in the coming two decades.
- The US NY Empire State Index for January registered the lowest reading since 2020, coming in at -43.7 versus -14.5 prior, below the market consensus of -5.
- Fed Governor Christopher Waller said interest rate cuts are likely this year, but the central bank should not rush to cut its benchmark rate until it is clear lower inflation will be sustained.
Technical Analysis: Indian Rupee keeps the negative outlook intact in the short term
Indian Rupee trades weaker on the day. The USD/INR pair has maintained the 141.40-144.70 trading range since September 2023. The bearish mood prevails for USD/INR as the pair holds below the key 100-period Exponential Moving Average (EMA) on the daily chart. The short-term patterns lean somewhat negative, supported by the 14-day Relative Strength Index (RSI) which stands below the 50.0 midpoint.
The immediate resistance level for USD/INR will emerge at the upper boundary of the trading range at 83.40. A decisive break above 83.40 will see extended gains to a psychological round mark at 84.00. On the downside, the initial support level is seen at the 83.00 figure. The key contention level to watch is near the confluence of the lower limit of the trading range and a low of September 12 at 82.80. Any follow-through selling will see a drop to a low of August 11 at 82.60, followed by a low of August 24 at 82.40.
US Dollar price this week
The table below shows the percentage change of US Dollar (USD) against listed major currencies this week. US Dollar was the strongest against the Australian Dollar.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | 0.69% | 0.89% | 0.65% | 1.76% | 1.48% | 1.59% | 1.01% | |
| EUR | -0.69% | 0.21% | -0.04% | 1.08% | 0.80% | 0.91% | 0.32% | |
| GBP | -0.91% | -0.21% | -0.25% | 0.87% | 0.58% | 0.70% | 0.11% | |
| CAD | -0.65% | 0.05% | 0.26% | 1.12% | 0.84% | 0.95% | 0.36% | |
| AUD | -1.79% | -1.08% | -0.88% | -1.14% | -0.29% | -0.17% | -0.76% | |
| JPY | -1.50% | -0.81% | -0.74% | -0.84% | 0.27% | 0.10% | -0.48% | |
| NZD | -1.62% | -0.93% | -0.72% | -0.98% | 0.17% | -0.13% | -0.61% | |
| CHF | -1.02% | -0.32% | -0.11% | -0.36% | 0.76% | 0.48% | 0.59% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Euro from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent EUR (base)/JPY (quote).
Indian economy FAQs
The Indian economy has averaged a growth rate of 6.13% between 2006 and 2023, which makes it one of the fastest growing in the world. India’s high growth has attracted a lot of foreign investment. This includes Foreign Direct Investment (FDI) into physical projects and Foreign Indirect Investment (FII) by foreign funds into Indian financial markets. The greater the level of investment, the higher the demand for the Rupee (INR). Fluctuations in Dollar-demand from Indian importers also impact INR.
India has to import a great deal of its Oil and gasoline so the price of Oil can have a direct impact on the Rupee. Oil is mostly traded in US Dollars (USD) on international markets so if the price of Oil rises, aggregate demand for USD increases and Indian importers have to sell more Rupees to meet that demand, which is depreciative for the Rupee.
Inflation has a complex effect on the Rupee. Ultimately it indicates an increase in money supply which reduces the Rupee’s overall value. Yet if it rises above the Reserve Bank of India’s (RBI) 4% target, the RBI will raise interest rates to bring it down by reducing credit. Higher interest rates, especially real rates (the difference between interest rates and inflation) strengthen the Rupee. They make India a more profitable place for international investors to park their money. A fall in inflation can be supportive of the Rupee. At the same time lower interest rates can have a depreciatory effect on the Rupee.
India has run a trade deficit for most of its recent history, indicating its imports outweigh its exports. Since the majority of international trade takes place in US Dollars, there are times – due to seasonal demand or order glut – where the high volume of imports leads to significant US Dollar- demand. During these periods the Rupee can weaken as it is heavily sold to meet the demand for Dollars. When markets experience increased volatility, the demand for US Dollars can also shoot up with a similarly negative effect on the Rupee.
Read the full article here