USD/INR extends the rally, eyes on Indian WPI inflation, US Retail Sales
- Indian Rupee edges lower amid the renewed USD demand.
- Risk-averse sentiment and the possible intervention from the Indian central bank might limit the upside of INR.
- Market players await the Indian WPI inflation and US Retail Sales for February, due on Thursday.
Indian Rupee (INR) trades on a negative note on Wednesday. The upbeat Indian Retail Inflation data for February provided some support to the local currency and drags the USD/INR pair lower on Tuesday. However, the renewed US Dollar (USD) demand from importers, risk-averse sentiment, and the potential intervention from the Reserve Bank of India (RBI) might cap the upside of the Indian Rupee.
Looking ahead, investors will monitor India’s Wholesale Price Index (WPI) of Food, Fuel, and Inflation on Thursday. On the US docket, US Retail Sales will be in the spotlight later on Thursday. The Retail Sales figure is estimated to improve to 0.8% MoM in February from a 0.8% drop in January.
Daily Digest Market Movers: Indian Rupee remains sensitive amid multiple headwinds
- India’s Retail inflation eased to 5.09% YoY in February from 5.10% in the previous month, better than the market expectation of 5.02%, according to the Ministry of Statistics & Programme Implementation.
- The Indian food inflation for February came in at 8.66% versus 8.30% prior. Meanwhile, the rural inflation rate remained steady at 5.34%, while the urban inflation rate declined to 4.78% from 4.92% in January.
- India’s Industrial Production dropped to 3.8% YoY in January from the previous reading of 4.2%, stronger than estimated.
- The US headline Consumer Price Index (CPI) came in line with expectations, rising 0.4% MoM in February. The annual CPI figure was above the market consensus, increasing 3.2% YoY in February.
- The Core CPI, excluding volatile food and energy prices, climbed 0.4% MoM and 3.8% YoY, above the market consensus.
- The upbeat inflation data might convince the Fed to focus on more data and allow policymakers to avoid having to rush to cut rates.
Technical Analysis: Indian Rupee remains capped within longer term trading band
Indian Rupee trades softer on the day. USD/INR has stayed within a multi-month-old descending trend channel around 82.60–83.15 since December 8, 2023.
The bearish outlook of USD/INR remains intact in the near term as the pair is below the 100-day Exponential Moving Average (EMA) on the daily timeframe. Furthermore, the downward momentum is supported by the 14-day Relative Strength Index (RSI), which lies below the 50.0 midlines, indicating the downtrend is more likely to resume than to reverse.
The lower limit of the descending trend channel at 82.60 acts as a potential support level for the pair. A breach of this level could sustain a bearish drop to a low of August 23 at 82.45, followed by a low of June 1 at 82.25.
On the upside, a decisive break above the confluence of the 100-day EMA and a psychological round mark of 83.00 could make its way back up to the upper boundary of the descending trend channel at 83.15. A bullish breakout above 83.15 will expose a high of January 2 at 83.35, en route to the 84.00 round figure.
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 strongest against the Euro.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | -0.63% | -0.68% | -0.71% | -1.68% | -1.67% | -1.22% | -0.66% | |
| EUR | 0.62% | -0.05% | -0.08% | -1.03% | -1.03% | -0.57% | -0.03% | |
| GBP | 0.68% | 0.05% | -0.03% | -0.97% | -0.97% | -0.52% | 0.03% | |
| CAD | 0.71% | 0.10% | 0.02% | -0.96% | -0.95% | -0.50% | 0.05% | |
| AUD | 1.65% | 1.04% | 0.97% | 0.93% | 0.00% | 0.44% | 0.99% | |
| JPY | 1.65% | 1.02% | 0.96% | 0.95% | 0.01% | 0.46% | 0.96% | |
| NZD | 1.20% | 0.58% | 0.52% | 0.50% | -0.46% | -0.45% | 0.56% | |
| CHF | 0.66% | 0.03% | -0.03% | -0.06% | -1.00% | -1.00% | -0.54% |
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.