USD/INR loses ground, focus on the Indian inflation data
- Indian Rupee holds positive ground on the decline of US Dollar.
- Analysts anticipate the Reserve Bank of India (RBI) to hold rates into next year.
- Investors await the Indian WPI inflation report, which is expected to rise by 0.08% versus -0.52% prior.
Indian Rupee (INR) gains traction on Thursday amid the US Dollar (USD) weakness. The Greenback faces some selling pressure from the Federal Reserve (Fed) Chairman Jerome Powell’s dovish remarks. Additionally, the dot plot now projects three rate cuts of 25 basis points (bps) each in 2024 instead of two.
On the other hand, the Reserve Bank of India (RBI) held its benchmark interest rate steady for a fifth straight policy meeting last week. Analysts anticipate the RBI to hold rates into next year and will ease the policy after the Fed begins cutting interest rates.
RBI Governor Shaktikanta Das stated that the Indian economy remains vulnerable to recurring and overlapping food price shocks. The surge in inflation was primarily driven by rising food prices, which has been an important issue for Prime Minister Narendra Modi’s administration as elections approach.
Market players will closely monitor India’s WPI inflation report on Thursday for fresh impetus. On the US docket, the US weekly Jobless Claims and Retail Sales will be due.
Daily Digest Market Movers: Indian Rupee remains sensitive to rising food prices
- India’s Consumer Price Index (CPI) grew 5.55% YoY in November from 4.87% in October, worse than the expectation of 5.70%.
- Indian Industrial Production rose by 11.7% in October, compared to a 4.1% gain in the previous reading while Manufacturing Output in the same period came in at 10.4% MoM versus 4.9% prior.
- The International Monetary Fund (IMF) projected India’s Real Gross Domestic Product (real GDP) to expand by more than 6.0% in 2023 and 2024, marking one of the fastest-growing in the world over the next few years.
- The Federal Reserve (Fed) kept the interest rates steady at the target range of 5.25%-5.5% in its December meeting, as widely expected.
- Fed Chair Jerome Powell said discussion about cutting rates is still ahead and the central will decide very carefully. Powell added that the Fed is very focused on not making the mistake of maintaining interest rates too high for too long.
- The Fed now estimated three rate cuts next year rather than two, according to interest rate projections.
- The US Core Producer Price Index (PPI) for November came in worse than the market expectation, easing from 2.3% to 2.0% YoY. The headline PPI figure fell 0.9% in November from a 1.2% rise in October.
Technical Analysis: Indian Rupee sticks to the positive stance
Indian Rupee trades on a stronger note on the day. The USD/INR pair has remained stuck in a trading range of 82.80-83.40 since September. From the technical perspective, the bullish outlook of USD/INR remains intact as the pair holds above the key 100-day Exponential Moving Average (EMA) on the daily chart. However, the 14-day Relative Strength Index (RSI) hovers around the 50.0 midline, warrants caution for bulls.
The upper boundary of the trading range at 83.40 acts as an immediate resistance level for the pair. Any follow-through buying above 83.40 will pave the way to the year-to-date (YTD) high of 83.47, followed by a round figure of 84.00. On the flip side, the key support level is seen at the 83.00 psychological round mark. A breach below this level will see a drop to the lower limit of the trading range and a low of September 12 at 82.80. A convincing breakout below the trading range will see the next downside stop near 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 | -1.21% | -0.60% | -0.91% | -2.53% | -3.91% | -1.59% | -0.76% | |
| EUR | 1.19% | 0.56% | 0.29% | -1.29% | -2.70% | -0.39% | 0.44% | |
| GBP | 0.62% | -0.57% | -0.29% | -1.89% | -3.29% | -0.95% | -0.13% | |
| CAD | 0.91% | -0.28% | 0.30% | -1.59% | -2.97% | -0.66% | 0.15% | |
| AUD | 2.48% | 1.30% | 1.86% | 1.59% | -1.36% | 0.92% | 1.71% | |
| JPY | 3.76% | 2.65% | 3.20% | 2.90% | 1.33% | 2.27% | 3.05% | |
| NZD | 1.56% | 0.39% | 0.96% | 0.67% | -0.92% | -2.29% | 0.83% | |
| CHF | 0.76% | -0.43% | 0.15% | -0.15% | -1.75% | -3.12% | -0.81% |
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).
Interest rates FAQs
Interest rates are charged by financial institutions on loans to borrowers and are paid as interest to savers and depositors. They are influenced by base lending rates, which are set by central banks in response to changes in the economy. Central banks normally have a mandate to ensure price stability, which in most cases means targeting a core inflation rate of around 2%.
If inflation falls below target the central bank may cut base lending rates, with a view to stimulating lending and boosting the economy. If inflation rises substantially above 2% it normally results in the central bank raising base lending rates in an attempt to lower inflation.
Higher interest rates generally help strengthen a country’s currency as they make it a more attractive place for global investors to park their money.
Higher interest rates overall weigh on the price of Gold because they increase the opportunity cost of holding Gold instead of investing in an interest-bearing asset or placing cash in the bank.
If interest rates are high that usually pushes up the price of the US Dollar (USD), and since Gold is priced in Dollars, this has the effect of lowering the price of Gold.
The Fed funds rate is the overnight rate at which US banks lend to each other. It is the oft-quoted headline rate set by the Federal Reserve at its FOMC meetings. It is set as a range, for example 4.75%-5.00%, though the upper limit (in that case 5.00%) is the quoted figure.
Market expectations for future Fed funds rate are tracked by the CME FedWatch tool, which shapes how many financial markets behave in anticipation of future Federal Reserve monetary policy decisions.