USD/INR recovers ahead of Indian WPI Inflation data
- The Indian Rupee loses ground in Monday’s early European session.
- Possible Fed rate cuts, lower US bond yields might support the local currency; firmer USD could weigh on the INR.
- Traders await India’s Wholesale Price Index (WPI) Inflation data on Monday for fresh impetus.
The Indian Rupee (INR) trades weaker on Monday despite the recovery of the US Dollar (USD). The rising hopes of rate cuts by the Federal Reserve (Fed), lower US bond yields, and persistent India’s foreign inflows might lift the INR. Nonetheless, the extended gains in crude oil prices and the renewed Greenback demand from state-run banks and local importers limit the INR’s potential gains. The downside of the local currency might be limited amid the Reserve Bank of India’s (RBI) routine interventions, which might support the INR from depreciating to near multi-month lows.
Looking ahead, investors will keep an eye on India’s Wholesale Price Index (WPI) Inflation data on Monday, which is expected to rise to 3.50% YoY in June from 2.61% in May. Also, the Indian Trade Balance will be released. On the US docket, the NY Empire State Manufacturing Index for July will be published, while Fed’s Mary Daly is due to speak.
Daily Digest Market Movers: Indian Rupee edges lower amid stronger US Dollar
- Indian Consumer Price Index (CPI) rose to the highest in four months at 5.08% YoY in June on the back of higher food prices, according to official data released on Friday. This figure was above the market consensus and the previous reading of 4.80%.
- India’s Industrial Production increased 5.9% YoY in May as against 5.0% in April, beating the estimation of 4.9%.
- The US Producer Price Index (PPI) rose to 2.6% YoY in June from a revised up in the previous reading of 2.4%, above the consensus of 2.3%. The core PPI climbed 3.0% YoY, surpassing the expected 2.5%. On a monthly basis, the PPI rose 0.2% MoM in June, above the market consensus of 0.1%.
- The University of Michigan’s Consumer Sentiment Index survey dropped to 66.0 in July from 68.2 in June, the lowest in seven months, falling short of the expected increase to 68.5. The UoM 5-year Consumer Inflation Expectations declined slightly in July to 2.9% from the previous reading of 3.0%.
- Financial markets are now pricing in above 90% odds for a 25 basis points (bps) cut in September, according to the CME Fedwatch Tool.
Technical analysis: USD/INR remains in consolidative mode in the near term
The Indian Rupee trades on a weaker note on the day. The USD/INR pair stays bullish on the daily chart as it holds above the key 100-day Exponential Moving Average (EMA).
Nonetheless, in the shorter term, the pair has remained within its month-long range since March 21. The 14-day Relative Strength Index (RSI) hovers around the 50-midline, suggesting that further consolidation cannot be ruled out.
A decisive break above the upper boundary of the trading range at 83.65 might pave the way to the all-time high of 83.75. Further north, the next upside barrier will emerge at the 84.00 psychological level.
On the flip side, a breach of the 100-day EMA at 83.37 might drag the pair lower to the 83.00 round figure. Sustained trading below this level will expose 82.82, a low of January 12.
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 New Zealand Dollar.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | -0.63% | -1.29% | 0.11% | -0.40% | -1.65% | 0.69% | 0.06% | |
| EUR | 0.61% | -0.66% | 0.73% | 0.22% | -1.03% | 1.32% | 0.70% | |
| GBP | 1.27% | 0.67% | 1.38% | 0.88% | -0.37% | 1.96% | 1.33% | |
| CAD | -0.11% | -0.74% | -1.41% | -0.52% | -1.78% | 0.59% | -0.04% | |
| AUD | 0.40% | -0.21% | -0.88% | 0.52% | -1.26% | 1.09% | 0.46% | |
| JPY | 1.64% | 1.02% | 0.35% | 1.74% | 1.28% | 2.31% | 1.70% | |
| NZD | -0.69% | -1.34% | -2.01% | -0.60% | -1.10% | -2.37% | -0.62% | |
| CHF | -0.06% | -0.70% | -1.37% | 0.04% | -0.47% | -1.73% | 0.63% |
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.