USD/INR gains ground, investors await the FOMC Meeting Minutes
- Indian Rupee trades weaker on the rebound in oil prices, USD demand.
- Global uncertainties will have a limited impact on the Indian economy.
- Market players will monitor the FOMC Meeting Minutes on Tuesday for fresh impetus.
Indian Rupee (INR) sticks to its modest intraday losses on Monday due to the recovery in oil prices and US demand from the local companies. Last week, S&P Global Ratings published a report indicating that slower external demand and sluggish global growth will impact economic activity and may contribute to further inflation. Nonetheless, the Indian economy will be marginally less affected by global uncertainties due to the country being domestically oriented.
Investors will focus on the Federal Open Market Committee (FOMC) Meeting Minutes on Tuesday. The report could provide some hints about future policy rate direction and inflation improvement. Market participants raised bets that the Federal Reserve (Fed) is done with the hiking cycle and priced in rate cuts of 100 basis points (bps) in the first half of 2024.
Daily Digest Market Movers: Indian Rupee faces limited risk from multiple headwinds
- The momentum of change in India’s GDP is sequentially expected to be higher in October-December on the back of “ebullient” festival demand, according to a report in the Reserve Bank of India’s (RBI) monthly bulletin.
- According to the RBI, the Indian economy will see a GDP growth rate of 6.5% in 2023-24.
- The central bank also stated India’s growth remains dependent on domestic demand, which provides a cushion against external shocks.
- RBI is expected to maintain the policy rate at its next monetary policy meeting, which is scheduled for December 6-8.
- India’s headline retail price inflation for October fell to 4.9% from 5% the previous month, the lowest reading in four months.
- India’s Wholesale Price Index (WPI) inflation arrived at -0.52% from -0.26%,previously, worse than the market consensus of -0.20%.
- The Consumer Price Index (CPI) in India grew by 4.87% year on year in October, compared to 5.02% the previous month, above the market estimate of 4.80%.
- US Housing Starts climbed by 1.9% MoM to 1.372M, better than the expectation of 1.350M. Building Permits rose by 1.1% to 1.487M, above the estimation of 1.450M.
- Federal Reserve (Fed) officials remarked on the prospects for monetary policy last week and were consistent in their tone.
- Boston Fed President Susan Collins said the central bank might bring down inflation without harming the labor market by being “patient” with future interest rate hikes.
- Fed President Austan Goolsbee stated that inflation is on pace to meet the Fed’s target as long as house price pressures decrease.
Technical Analysis: The Indian Rupee keeps the bearish bias unchanged
The Indian Rupee trades softer on the day. The USD/INR pair has traded within a wider range of 82.80–83.35 since September. From a technical perspective, the USD/INR maintains a bullish vibe as the pair holds above the key 100-day Exponential Moving Average (EMA) on the daily chart. This notion is backed by the 14-day Relative Strength Index (RSI) holding above the 50.0 midline.
The first USD/INR upside barrier is near the upper boundary of the trading range of 83.35. A decisive break above 83.35 could open the door to challenge the year-to-date (YTD) high of 83.47. Further north, the additional upside filter to watch is a psychological round figure at 84.00.
On the other hand, the confluence of the lower limit of the trading range and a low of September 12 at 82.80 act as an initial support level for the pair. If the sellers drag prices below 82.80, the next contention will emerge at a low of August 11 at 82.60, followed by a low of August 24 at 82.37.
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 Canadian Dollar.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | -2.20% | -2.12% | -0.74% | -2.93% | -1.65% | -2.31% | -2.10% | |
| EUR | 2.16% | 0.08% | 1.43% | -0.72% | 0.54% | -0.10% | 0.12% | |
| GBP | 2.07% | -0.08% | 1.35% | -0.80% | 0.46% | -0.19% | 0.03% | |
| CAD | 0.73% | -1.47% | -1.36% | -2.18% | -0.91% | -1.54% | -1.34% | |
| AUD | 2.85% | 0.71% | 0.79% | 2.15% | 1.22% | 0.62% | 0.84% | |
| JPY | 1.63% | -0.52% | -0.45% | 0.91% | -1.24% | -0.62% | -0.43% | |
| NZD | 2.25% | 0.08% | 0.16% | 1.51% | -0.62% | 0.62% | 0.19% | |
| CHF | 2.04% | -0.12% | -0.03% | 1.32% | -0.85% | 0.43% | -0.21% |
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.