USD/INR gains momentum ahead of the US PPI, Fed rate decision
- Indian Rupee loses traction on the modest US Dollar (USD) demand.
- Indian Consumer Price Index (CPI) surged 5.55% YoY in November vs. 4.87% prior, Food Inflation climbed to 8.70% vs. 6.61% prior.
- Market players will closely watch the Fed interest rate decision and the press conference.
Indian Rupee (INR) extends its downside amid modest US Dollar (USD) strength. Data released on Tuesday revealed that the Indian Consumer Price Index (CPI) came in higher than the Reserve Bank of India (RBI) target of 4.0%. Although headline inflation remained within its tolerance range of 2–6% for the third consecutive month, it has surpassed the medium-term target of 4% for the past 50 consecutive months.
Furthermore, the Consumer Food Price Index, which measures food inflation, increased by 8.70% in November from 6.61% the previous month. Last week, the RBI Monetary Policy Committee decided to keep the policy repo rate steady at 6.50%, and the MPC stated that they will closely monitor any indications of food price pressures.
Investors await the US Producer Price Index (PPI) on Wednesday ahead of the Federal Reserve (Fed) monetary policy meeting. The annual PPI figure is forecast to ease from 1.3% to 1.0% in November, while the PPI rate ex Food & Energy is expected to drop from 2.4% to 2.2% in the same period. The highlight will be the Fed interest rate decision, with no change expected. Nonetheless, investors will examine Fed Chair Jerome Powell’s comments after the meeting for fresh impetus.
Daily Digest Market Movers: Indian Rupee trades weaker amid higher inflation concern
- India’s Consumer Price Index (CPI) surged 5.55% YoY in November from 4.87% in October, according to the Ministry of Statistics & Programme Implementation.
- Indian Industrial Production for October reached a 16-month peak, rising by 11.7% compared to a 4.1% increase in the previous reading.
- Indian Manufacturing Output for October came in at 10.4% MoM versus 4.9% prior.
- The International Monetary Fund (IMF) stated that India’s economy will be one of the fastest-growing in the world over the next few years, estimating Real Gross Domestic Product (real GDP) to expand by more than 6.0% in both 2023 and 2024.
- According to the National Securities Depository, foreign investors allotted $3.7 billion in Indian equities and $800 million in debt over the six sessions in December.
- US inflation, as measured by the Consumer Price Index (CPI), climbed 0.1% MoM in November from 0% in October, while the annual CPI eased from 3.2% to 3.1% in November.
- The Core CPI, which excludes volatile food and energy prices, rose to 0.3% MoM from 0.1% in the previous month. On an annual basis, the Core CPI figure grew 4.0% YoY, matching expectations.
- The markets anticipate the Fed to maintain the benchmark overnight borrowing rate in a range between 5.25% and 5.50% at its December meeting.
Technical Analysis: Indian Rupee’s constructive outlook remains unchanged
Indian Rupee trades on a softer note on the day. The USD/INR pair has traded in a familiar trading band between 82.80 and 83.40 since September. According to the daily chart, USD/INR maintains a bullish vibe as the pair holds above the key 100-day Exponential Moving Average (EMA). The upward momentum is reinforced by the 14-day Relative Strength Index (RSI) that stands above the 50.0 midline.
A decisive break above the upper boundary of the trading range at 83.40 will see the next upside barrier near the year-to-date (YTD) high of 83.47, en route to a psychological round mark of 84.00. On the other hand, any follow-through selling below the critical support level of 83.00 round figure will next downside stop near 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 weakest against the Japanese Yen.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | 0.03% | 0.27% | 0.02% | -0.03% | -1.14% | 0.52% | 0.05% | |
| EUR | -0.03% | 0.24% | -0.01% | -0.07% | -1.18% | 0.49% | 0.02% | |
| GBP | -0.28% | -0.25% | -0.25% | -0.31% | -1.42% | 0.23% | -0.23% | |
| CAD | -0.01% | 0.04% | 0.27% | -0.04% | -1.14% | 0.51% | 0.03% | |
| AUD | 0.03% | 0.06% | 0.32% | 0.04% | -1.10% | 0.57% | 0.09% | |
| JPY | 1.13% | 1.16% | 1.39% | 1.14% | 1.08% | 1.63% | 1.17% | |
| NZD | -0.52% | -0.49% | -0.22% | -0.50% | -0.56% | -1.67% | -0.47% | |
| CHF | -0.04% | -0.01% | 0.24% | -0.02% | -0.07% | -1.19% | 0.48% |
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.