USD/INR loses traction, all eyes on US CPI, Fed rate decision
- Indian Rupee edges higher on Wednesday amid the firmer US Dollar.
- The potential FX intervention from the RBI might protect INR from further weakness.
- The Indian Consumer Price Index (CPI) for May is due on Wednesday ahead of the US key events.
Indian Rupee (INR) trades on a positive note on Wednesday despite the stronger US Dollar (USD). The downside for the INR might be limited as the Reserve Bank of India (RBI) is likely to prevent local currency from depreciating. On the other hand, the weakness in Asian peers, the rise in crude oil prices, and the cautious mood might drag the INR lower.
India’s May Consumer Price Index (CPI) and Industrial Production are due on Wednesday. On the US front, the CPI inflation data will be released ahead of the Federal Reserve (Fed) monetary policy meeting. The Fed is widely expected to maintain policy rates steady at its June meeting on Wednesday. Investors will closely monitor Fed Chair Jerome Powell’s message during the press conference for more clues about any modifications to the interest rate dot plot. The hawkish tone from the Fed’s Powell could boost the US Dollar and create a tailwind for the pair.
Daily Digest Market Movers: Indian Rupee gains ground ahead of the key events from both India and the US
- The one-month implied volatility of the USD/INR pair has dropped to 2.20%, down from a six-month peak of 3.35% in May.
- “Don’t think there’s a lot of fresh positioning (on USD/INR) currently as people are mostly waiting for Fed and US (inflation) data,” said a foreign exchange trader at a private bank.
- India’s CPI inflation is expected to rise to 4.90 YoY in May from 4.83% in April.
- World Bank stated in its June Global Economic Prospects report that India will remain the fastest-growing of the world’s largest economies with a steady average annual growth of 6.7% between FY25 and FY27.
- The US headline CPI figure is estimated to show an increase of 3.4% YoY in May, while the core CPI for May is projected to rise 3.5% YoY.
- Interest rate futures are pricing in about 38 basis points (bps) of rate cuts over 2024, down from nearly 50 bps last week.
Technical analysis: USD/INR’s positive outlook persists in the longer term
The Indian Rupee trades stronger on the day. The positive outlook of the USD/INR pair prevails as the pair is above the key 100-day Exponential Moving Average (EMA) and descending trend channel upper boundary.
Further consolidation cannot be ruled out in the near term, supported by the neutral 14-day Relative Strength Index (RSI), which stands flat around the 50-midline.
The next upside barrier will emerge at 83.72, a high of April 17. Further north, the next hurdle to watch is the 84.00 psychological mark. On the flip side, the crucial support level is seen at 83.30, portraying the confluence of the 100-day EMA and descending trend channel upper boundary. A breach of this level will pave the way to 82.78, a low of January 15.
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 Japanese Yen.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | 1.33% | 0.25% | 0.55% | 0.49% | 1.34% | 0.50% | 0.87% | |
| EUR | -1.34% | -1.09% | -0.79% | -0.84% | 0.04% | -0.81% | -0.46% | |
| GBP | -0.24% | 1.08% | 0.30% | 0.25% | 1.12% | 0.27% | 0.62% | |
| CAD | -0.56% | 0.78% | -0.29% | -0.05% | 0.84% | -0.03% | 0.33% | |
| AUD | -0.49% | 0.83% | -0.25% | 0.06% | 0.88% | 0.01% | 0.38% | |
| JPY | -1.36% | -0.05% | -1.12% | -0.82% | -0.88% | -0.87% | -0.50% | |
| NZD | -0.50% | 0.83% | -0.25% | 0.07% | -0.02% | 0.85% | 0.37% | |
| CHF | -0.88% | 0.45% | -0.62% | -0.33% | -0.40% | 0.50% | -0.36% |
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.