- Indian Rupee recovers its recent losses on the weaker USD.
- RBI’s Das said the Indian economy is likely to grow close to 8.0% in FY24, exceeding the estimate of 7.6%.
- Investors will focus on the US weekly Initial Jobless Claims and the second testimony by Fed Chair Powell on Thursday.
Indian Rupee (INR) edges higher on Thursday amid the decline of the US Dollar Index (DXY). Economists anticipate USD/INR to trade in a narrow band in the next months and to rise modestly in a year as the Reserve Bank of India (RBI) continues to intervene in currency markets.
On Wednesday, RBI governor Shaktikanta Das said the Indian economy is poised to grow more than the central government’s second-advance estimate of 7.6% growth in the current financial year (FY24), and it might be closer to 8.0%. India’s robust domestic growth along with stable external macros has been underpinning the strength in INR. Nonetheless, higher US Treasury bond yields and the rebound in oil prices might lift the US Dollar (USD) and cap the downside of the pair.
Looking ahead, the US weekly Initial Jobless Claims and Trade Balance are due on Thursday, along with the second testimony by Chair Powell and the Fed’s Mester speech. On Friday, attention will shift to the highly-anticipated US Nonfarm Payrolls, which is forecast to see 200K job additions in February from 353K in January.
Daily Digest Market Movers: Indian Rupee remains sensitive to higher bond yields and a rise in oil prices
- The government raised its growth forecast for the fiscal year 2024 to 7.6% from 7.3%.
- India’s GDP expanded at 8.4% in the final three months of 2023, the strongest in 18 months, boosted by robust manufacturing and construction activities.
- US ADP private sector employment rose 140K in February from 111K in January, below the market expectation of 150K.
- January JOLTS job openings dropped to 8.863M versus 9.026M prior, below the consensus of 8.900M.
- The Federal Reserve (Fed) Chair Jerome Powell said on Wednesday that interest rate cuts are likely at some point in 2024, but is not yet ready to say when.
- Powell noted that the central bank thinks it’s not appropriate to cut the rate until they have confidence that inflation is moving sustainably toward 2%.
Most recent article: Sensex trades flat in opening dealings on Thursday
Technical Analysis: Indian Rupee remains capped in a longer band of 82.65-83.15
Indian Rupee trades strongly on the day. USD/INR has been traded within a multi-month-old descending trend channel since December 8, 2023 around 82.65-83.15
USD/INR maintains the bearish outlook unchanged as the pair holds below the 100-day Exponential Moving Average (EMA) on the daily chart. It’s worth noting that the 14-day Relative Strength Index (RSI) supports the sellers for the time being as it lies below the 50.0 midline.
If the pair breaks below the key support level near the lower limit of the descending trend channel at 82.65, then USD/INR may get enough bearish pressure to test lower near a low of August 23 at 82.45 and finally a low of June 1 at 82.25.
A bullish breakout above the confluence of the 100-day EMA and a psychological round figure of 83.00 could attract bulls to the upper boundary of the descending trend channel at 83.15. The additional upside filter to watch is a high of January 2 at 83.35, en route to 84.00.
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 Swiss Franc.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | -0.55% | -0.59% | -0.31% | -0.83% | -1.01% | -0.63% | -0.22% | |
| EUR | 0.54% | -0.06% | 0.23% | -0.29% | -0.47% | -0.08% | 0.33% | |
| GBP | 0.58% | 0.05% | 0.26% | -0.25% | -0.42% | -0.05% | 0.38% | |
| CAD | 0.31% | -0.22% | -0.27% | -0.51% | -0.71% | -0.32% | 0.10% | |
| AUD | 0.83% | 0.28% | 0.23% | 0.51% | -0.17% | 0.21% | 0.61% | |
| JPY | 1.02% | 0.47% | 0.38% | 0.68% | 0.18% | 0.38% | 0.80% | |
| NZD | 0.62% | 0.09% | 0.03% | 0.32% | -0.20% | -0.39% | 0.42% | |
| CHF | 0.21% | -0.33% | -0.39% | -0.10% | -0.62% | -0.80% | -0.41% |
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