USD/INR drifts lower, all eyes on the Indian GDP, US PCE data
- Indian Rupee edges higher on the softer US Dollar.
- India’s GDP number is expected to expand to 6.8% in the July–September quarter compared with the previous year.
- India’s GDP Quarterly for Q2 and US Core Personal Consumption Expenditure Price Index (PCE) will be in the spotlight on Thursday.
Indian Rupee (INR) drifts higher on Thursday as dovish comments from Federal Reserve (Fed) officials undermine the US Dollar demand. Asia’s third-largest economy grew at 7.8% in the first quarter of the current fiscal year. India’s GDP number for the second quarter are scheduled to be released later in the day and is expected to grow at 6.8% in the July–September quarter compared with a year earlier.
Furthermore, Economic Affairs Secretary Ajay Seth expressed an optimistic view on the Indian economy on Wednesday, stating that the country is showing momentum and the growth rate in the second quarter is likely to be good. The Budget 2023-24 proposes to bring down the fiscal deficit to 5.9% of the GDP from 6.4% in the previous financial year. The government intends to decrease the budget deficit to less than 4.5% of GDP by 2025-26.
Investors will closely monitor India’s Gross Domestic Product (GDP) quarterly for the second quarter (Q2), which is scheduled for release on Thursday. Additionally, the development surrounding the last phase of state elections in India remains in focus, as a change in government might lead to policy modifications that could impact investors. On the US front, the Core Personal Consumption Expenditure Price Index (PCE) for October will be released, and this report could impact the expectations of the coming Fed decisions.
Daily Digest Market Movers: Indian Rupee strengthens amid multiple headwinds
- Indian economy is projected to expand by 6.8% in the July-September quarter compared to the same period last year, according to a Reuters poll.
- Analysts anticipate that India’s Gross Domestic Product will expand by more than 6.0% next year, making it the fastest-growing major economy.
- Reserve Bank of India (RBI) projected growth of 6.5% for the period of July to September.
- Domestic demand in India continues to be the primary driver of economic activity, as external demand remains fragile.
- US Gross Domestic Product Annualized for the third quarter (Q3) grew 5.2% in the third quarter (Q3) from the previous reading of 4.9%, above the market consensus of 5.0%.
- The US Core Personal Consumption Expenditure Price Index (PCE) for October is expected to ease to 0.2% MoM and 3.5% YoY.
- Federal Reserve (Fed) Governor Michelle Bowman said she sought to keep alive the possibility of more rate hikes, raising concerns about the longevity of inflationary pressure.
- Fed Governor Christopher Waller stated that the Fed won’t need to raise rates further and may begin cutting rates if inflation continues to ease over the next three to five months.
Technical Analysis: Indian Rupee keeps the positive outlook intact
The Indian Rupee trades strongly on the day. The USD/INR pair has traded in a familiar range of 82.80–83.40 since September. According to the daily chart, the continuation of the upward bias remains valid as the pair holds above the key 100-day Exponential Moving Average (EMA) with an upward slope. Further upside looks favorable, backed by the 14-day Relative Strength Index (RSI) that holds above the 50.0 midline.
The immediate target for bulls to beat will emerge at the upper boundary of the trading range at 83.40. The additional upside filter to watch is the year-to-date (YTD) high of 83.47, and finally a psychological round figure of 84.00. On the flip side, the 83.00 psychological mark offered support to USD/INR. A decisive break below 83.00 will see a drop to the confluence of the lower limit of the trading range and a low of September 12 at 82.80, followed by a low of August 11 at 82.60.
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 | -0.74% | -1.66% | -0.83% | -1.49% | -1.62% | -2.46% | -1.23% | |
| EUR | 0.73% | -0.92% | -0.10% | -0.75% | -0.88% | -1.71% | -0.48% | |
| GBP | 1.62% | 0.90% | 0.81% | 0.16% | 0.04% | -0.79% | 0.42% | |
| CAD | 0.82% | 0.09% | -0.82% | -0.66% | -0.78% | -1.62% | -0.39% | |
| AUD | 1.49% | 0.75% | -0.16% | 0.66% | -0.12% | -0.94% | 0.27% | |
| JPY | 1.59% | 0.86% | -0.04% | 0.78% | 0.10% | -0.83% | 0.39% | |
| NZD | 2.40% | 1.68% | 0.79% | 1.57% | 0.94% | 0.82% | 1.21% | |
| CHF | 1.22% | 0.49% | -0.42% | 0.40% | -0.28% | -0.38% | -1.21% |
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).
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.