USD/INR edges lower ahead of Indian Trade Balance, US Retail Sales data
- Indian Rupee gains traction amid the softer USD and lower bond yields.
- Indian CEA said the government is worried about headline retail inflation but is confident that India can manage it well.
- The Indian Trade Balance and US January Retail Sales will be due later on Thursday.
Indian Rupee (INR) attracts some buyers on Thursday amid the decline of the US Dollar (USD) and lower US Treasury bond yields. The Reserve Bank of India (RBI) held interest rates steady at its bi-monthly monetary policy earlier this month, with an effort to bring down headline retail inflation to 4%, while retail inflation continues to exceed 5%.
Chief economic advisor (CEA) V. Anantha Nageswaran said that since wholesale inflation has been eased, the Indian government is little worried about headline retail inflation, but is confident that India will be able to effectively manage it. Investors expect the RBI to maintain the hawkish stance in the near term and not to ease policy ahead of the US Federal Reserve (Fed), which might lift the INR and cap the upside of the USD/INR pair.
The Indian Trade Balance will be due at 10:00 GMT on Thursday. On the US docket, the January Retail Sales, Philly Fed Manufacturing Index, Industrial Production, and weekly Initial Jobless Claims will be released later in the day.
Related read: Nifty and Sensex kick off Thursday with modest gains
Daily Digest Market Movers: Indian Rupee remains vulnerable in the face of higher oil prices and inflation
- India’s Wholesale Price Index-based inflation eased further to 0.27% YoY in January from 0.73% in December, below the market consensus of 0.53%, according to the Commerce Ministry.
- India’s Wholesale Price Index (WPI) Food arrived at 6.85% in January versus 9.38% prior.
- India’s Retail inflation softened to 5.10% on an annual basis in January from 5.69% in December, better than the estimation of 5.09%.
- The hotter-than-expected US inflation data last week convinced Fed officials to maintain a cautious approach as they further evaluate the trajectory of inflation in the coming months.
- Fed Vice Chair for Supervision Michael Barr said that the Fed remains confident that US inflation is on the way to hitting the central bank’s 2% target. However, Barr emphasized the necessity of further positive data before advocating interest rate cuts.
- Fed fund futures traders have priced in an 8% chance of a rate cut in the March policy meeting, from a 76.9% possibility a month ago, according to the CME FedWatch Tool.
Technical Analysis: Indian Rupee inches higher within the long-term trading band
Indian Rupee trades stronger on the day. USD/INR remains confined within a familiar multi-month-old descending trend channel of 82.70–83.20 since December 8, 2023.
In the near term, USD/INR keeps a neutral bias and continues its non-directional action as the pair hovers around the key 100-period Exponential Moving Average (EMA) on the daily timeframe. It’s worth noting that the 14-day Relative Strength Index lies below the 50.0 midline, suggesting that further decline cannot be ruled out.
A decisive break above the upper boundary of the descending trend channel at 83.20 could get enough fuel to hit a high of January 2 at 83.35, en route to the 84.00 psychological level.
On the downside, the 83.00 psychological round mark acts as an initial support level for USD/INR. The next downside target will emerge at a low of February 2 at 82.83. A potential support level is located at the lower limit of the descending trend channel at 82.70, followed by a low of August 23 at 82.45.
US Dollar price in the last 7 days
The table below shows the percentage change of US Dollar (USD) against listed major currencies in the last 7 days. US Dollar was the weakest against the New Zealand Dollar.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | 0.43% | 0.48% | 0.58% | 0.49% | 1.33% | 0.39% | 1.25% | |
| EUR | -0.44% | 0.04% | 0.16% | 0.07% | 0.90% | -0.05% | 0.80% | |
| GBP | -0.48% | -0.04% | 0.12% | 0.04% | 0.86% | -0.07% | 0.75% | |
| CAD | -0.60% | -0.16% | -0.11% | -0.10% | 0.74% | -0.20% | 0.65% | |
| AUD | -0.50% | -0.06% | -0.02% | 0.10% | 0.84% | -0.11% | 0.74% | |
| JPY | -1.38% | -0.92% | -0.89% | -0.76% | -0.86% | -0.98% | -0.09% | |
| NZD | -0.39% | 0.04% | 0.09% | 0.21% | 0.11% | 0.95% | 0.84% | |
| CHF | -1.25% | -0.81% | -0.77% | -0.64% | -0.72% | 0.10% | -0.85% |
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.