USD/INR drifts higher ahead of US CPI data
- Indian Rupee gains momentum on Tuesday due to the risk appetite and robust Indian economy outlook.
- The upbeat US labour market data and delaying rate cut expectation acts as a tailwind for USD.
- The US March CPI report on Wednesday will be a closely watched event.
Indian Rupee (INR) extends its upside on Tuesday. A positive bias in INR is bolstered by the risk appetite in global markets, Foreign Institutional Investors (FIIs) inflows, and strength in the domestic markets. Nonetheless, the expectation that the Federal Reserve (Fed) might delay the interest rate cuts due to the upbeat US labour market data and the strength of the US economy might lift the Greenback and cap the downside of the USD/INR pair.
Market players will monitor the US March Consumer Price Index (CPI) report on Wednesday for fresh cues about the inflation trajectory in the US. The monthly CPI figure is expected to ease to 0.3% MoM in March from 0.4% in the previous reading. The stronger-than-expected figure in the March report could dampen expectations for Fed rate cuts in June, while softer data could fuel speculation for rate reductions. On the Indian docket, the market will be closed on Thursday for Ramadan Eid. On Friday, the Indian CPI report for March and Industrial Production for February will be released.
Daily Digest Market Movers: Indian Rupee remains strong amid the optimistic outlook for the Indian economy
- India’s CPI inflation likely eased to a five-month low of 4.91% in March but remains above the Reserve Bank of India’s (RBI) 4% medium-term target as food price rises persist, per economists polled by Reuters.
- RBI Governor Shaktikanta Das said that food price volatility remains a concern as it impacts millions of poor households already heavily dependent on government food subsidies.
- The RBI said that it can manage huge inflows with ease, which means it will be able to buy Dollars and ensure that appreciation is not beyond a certain level.
- RBI stood out with its continued accumulation of gold reserves. Weekly data from the RBI revealed a 6-tonne increase in gold holdings in February alone.
- The Indian central bank continues the accumulation of gold reserves. The weekly data from the RBI indicated that gold holdings rose by 6 tonnes in February alone.
- Minneapolis Fed President Neel Kashkari noted that he penciled in two interest rate cuts this year but if inflation continues to stall, no rate cuts would be a possible scenario.
- Investors have priced in the 50% chance of rate cuts below 50% in June, from about 57% a week earlier, according to the CME’s FedWatch tool.
Technical analysis: USD/INR keeps a bullish vibe in the longer term
The Indian Rupee trades strongly on the day. The bullish stance of USD/INR remains intact in the long term since the pair has risen above a nearly four-month-old descending trend channel since March 22.
In the near term, USD/INR holds above the key 100-day Exponential Moving Average (EMA) on the daily timeframe, with the 14-day Relative Strength Index (RSI) standing in bullish territory around 55.0. This indicates that the further upside looks favorable.
Any follow-through selling below 83.20 (high of March 21), the pair could drop all the way down to the 83.00–83.50 region (round mark, the 100-day EMA), followed by 82.80 (low of March 14). On the upside, a convincing bullish movement above 83.45 (high of April 5) could open the pair to a move back to its all-time high of 83.70 en route to the 84.00 psychological level.
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 Australian Dollar.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | -1.13% | -0.91% | 0.01% | -1.87% | 0.19% | -1.53% | -0.04% | |
| EUR | 1.12% | 0.23% | 1.13% | -0.74% | 1.30% | -0.40% | 1.09% | |
| GBP | 0.89% | -0.23% | 0.90% | -0.97% | 1.08% | -0.63% | 0.85% | |
| CAD | -0.01% | -1.14% | -0.91% | -1.89% | 0.18% | -1.54% | -0.05% | |
| AUD | 1.85% | 0.74% | 0.97% | 1.86% | 2.04% | 0.35% | 1.81% | |
| JPY | -0.19% | -1.33% | -1.10% | -0.17% | -2.06% | -1.73% | -0.22% | |
| NZD | 1.51% | 0.40% | 0.63% | 1.53% | -0.32% | 1.70% | 1.48% | |
| CHF | 0.04% | -1.09% | -0.86% | 0.05% | -1.84% | 0.23% | -1.49% |
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.