USD/INR gathers strength on the renewed USD demand
- Indian Rupee edges lower amid the renewed US dollar demand
- The strong month of equity inflows boosts the Indian Rupee ahead of the long holiday.
- The US Building Permits and Housing Starts will be due later on Tuesday.
The Indian Rupee (INR) trades on a softer note on Tuesday. Custodial banks’ dollar sales on Monday helped the INR rise to a nearly three-month high before US Dollar (USD) demand from importers pulled it back and made it close slightly lower. Nonetheless, the anticipation of three rate cuts next year from the Fed might cap the US Dollar’s (USD) upside and act as a headwind for USD/INR.
Overseas investors purchased more than $1 billion in Indian shares on Friday, after $1.5 billion in purchases in the first four days of the week, according to National Securities Depository Ltd. The market could face a choppy session amid low trading activity as traders prepare for the long holiday weekend.
India’s Minister of State for Finance, Pankaj Chaudhary said on Monday that narrowing down the impact of the rupee’s depreciation on the country’s exports and imports is not possible since various factors also explain trade movements. Chaudhary added that the INR’s exchange rate is market-determined, with no target, specific level, or band. Earlier this month, RBI Governor Shaktikanta Das said the Indian rupee had been less volatile in 2023 compared to its emerging market peers.
Investors will focus on the release of US housing data on Tuesday, including Building Permits and Housing Starts. Later this week, the US Gross Domestic Product Annualized (Q3) on Thursday and the Core Personal Consumption Expenditures Price Index (PCE), the Fed’s preferred inflation gauge, on Friday will be in the spotlight.
Daily Digest Market Movers: Indian Rupee stays on the soft side amid the multiple headwinds
- According to bankers and analysts on Monday, importers could use the Indian rupee’s rise to its highest level in almost three months to hedge a significant portion of their short-term foreign payments.
- According to the Reserve Bank of India (RBI), India’s foreign currency reserves increased by $2.816 billion in the week ended December 8 to a four-month high of $606.859 billion.
- The RBI kept key policy rates unchanged in its October meeting while raising India’s GDP growth forecast for fiscal year 2023–24 to 7.0% from 6.5%.
- In a display of resilience and economic fortitude, India is charting a path of accelerated growth, outpacing global uncertainties. According to the Asian Development Outlook.
- New York Fed President John Williams said the Fed isn’t talking about rate cuts right now and it’s too early to speculate about them.
- Atlanta Fed President Raphael Bostic stated that the Fed can begin reducing interest rates sometime in the third quarter of 2024 if inflation falls.
Technical Analysis: Indian Rupee keeps the longer-term range theme unchanged
Indian Rupee trades weaker on the day. The USD/INR pair has traded within a trading range between 82.80 and 83.40 since September. The positive outlook of USD/INR remains intact as the pair bounces back above the key 100-day Exponential Moving Average (EMA) on the daily chart. However, the 14-day Relative Strength Index (RSI), which stands below the 50.0 midline, warrants caution for bullish traders.
A decisive break below the key support level of 83.00 will trigger the possibility of a short-term down move to 82.80. The mentioned level is the confluence of the lower limit of the trading range and a low of September 12. Further south, the next contention level is located near a low of August 11 at 82.60. On the other hand, the upper boundary of the trading range at 83.40 acts as an immediate resistance level. The additional upside filter to watch is the year-to-date (YTD) high of 83.47, en route to the psychological round mark of 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 Japanese Yen.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | -0.29% | 0.12% | 0.11% | -0.29% | 0.82% | -0.30% | -0.49% | |
| EUR | 0.28% | 0.39% | 0.40% | 0.03% | 1.09% | 0.00% | -0.20% | |
| GBP | -0.10% | -0.39% | 0.01% | -0.36% | 0.70% | -0.39% | -0.58% | |
| CAD | -0.11% | -0.40% | -0.02% | -0.38% | 0.68% | -0.41% | -0.60% | |
| AUD | 0.25% | -0.04% | 0.37% | 0.37% | 1.07% | -0.05% | -0.24% | |
| JPY | -0.83% | -1.09% | -0.69% | -0.69% | -1.07% | -1.08% | -1.30% | |
| NZD | 0.30% | 0.00% | 0.39% | 0.41% | 0.03% | 1.09% | -0.20% | |
| CHF | 0.47% | 0.20% | 0.58% | 0.60% | 0.23% | 1.28% | 0.20% |
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).
RBI FAQs
The role of the Reserve Bank of India (RBI), in its own words, is “..to maintain price stability while keeping in mind the objective of growth.” This involves maintaining the inflation rate at a stable 4% level primarily using the tool of interest rates. The RBI also maintains the exchange rate at a level that will not cause excess volatility and problems for exporters and importers, since India’s economy is heavily reliant on foreign trade, especially Oil.
The RBI formally meets at six bi-monthly meetings a year to discuss its monetary policy and, if necessary, adjust interest rates. When inflation is too high (above its 4% target), the RBI will normally raise interest rates to deter borrowing and spending, which can support the Rupee (INR). If inflation falls too far below target, the RBI might cut rates to encourage more lending, which can be negative for INR.
Due to the importance of trade to the economy, the Reserve Bank of India (RBI) actively intervenes in FX markets to maintain the exchange rate within a limited range. It does this to ensure Indian importers and exporters are not exposed to unnecessary currency risk during periods of FX volatility. The RBI buys and sells Rupees in the spot market at key levels, and uses derivatives to hedge its positions.