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12 Jan 2024
USD/INR trades firmly in the green, eyes on US PPI data
- Indian Rupee trades on a softer note amid a firmer US Dollar and a stronger US inflation report.
- Reserve Bank of India (RBI) Governor Das emphasized that the Indian banking system is well-placed to support India’s growth outlook.
- Market players will focus on the US Producer Price Index (PPI) and the Indian Consumer Price Index (CPI) on Friday.
Indian Rupee (INR) weakens on the renewed US dollar (USD) demand on Friday. The upbeat US inflation data on Thursday has boosted the Greenback as investors now see the Federal Reserve (Fed) potentially delaying its first interest rate cut.
India’s Prime Minister Narendra Modi said on Wednesday that India is set to become one of the top three global economies, while Reserve Bank of India (RBI) Governor Shaktikanta Das has emphasized that the Indian banking system is well-placed to support India’s growth story as all key indicators of scheduled commercial banks (SCBs) have shown improvement in the last four years.
Investors will closely monitor the US Producer Price Index (PPI) for December, due later on Friday. The PPI figure is estimated to show an increase of 1.3% YoY. Additionally, Fed’s Neel Kashkari is set to speak. On the Indian docket, the December CPI, Industrial Production, and Manufacturing Output will be released.
Daily Digest Market Movers: Indian Rupee loses traction amid strong US inflation data and uncertainties
- India's outward Foreign Direct Investment (FDI) commitments declined sharply to $2.25 billion in December 2023 from $4.0 billion in November 2023, according to Reserve Bank of India (RBI) data.
- India’s Finance Minister Nirmala Sitharaman will unveil the 2024/25 budget on February 1.
- The World Bank maintained its FY25 economic growth forecast for India at 6.4%, attributing it to robust private-sector credit growth, rising public infrastructure spending, and solid domestic demand.
- Finance Minister Nirmala Sitharaman projected that India's economy would reach $5 trillion by 2027–28, making it the third largest in the world.
- US Consumer Price Index (CPI) came in better than expected in December, rising 3.4% YoY from the 3.1% increase seen the month prior. On a monthly basis, the headline CPI grew 0.3% MoM from 0.1% in the previous reading, above the market consensus of 0.2%.
- The Core CPI figure, which excludes volatile food and energy prices, grew 0.3% MoM while the annual rate climbed 3.9% YoY in December versus 4.0% prior, above the market consensus of 3.8%.
- The upbeat US CPI inflation data prompted investors to question that the Federal Reserve (Fed) might delay cutting interest rates in the second quarter.
- Chicago Fed President Austan Goolsbee said 2023 was a "hall-of-fame" year for falling inflation, setting the path for a couple of interest rate cuts in the United States in 2024 if the trend continued.
Technical Analysis: Indian Rupee remains bearish in the shorter term
Indian Rupee trades weaker on the day. The USD/INR pair has traded within a familiar trading range of 82.80-83.40 since September 2023. From the technical perspective, USD/INR maintains a bearish tone as the pair holds below the key 100-period Exponential Moving Average (EMA). Furthermore, the 14-day Relative Strength Index (RSI) is below the 50.0 midpoint, indicating a further decline cannot be ruled out.
A decisive break below the 83.00 psychological level will pave the way to the critical support level of 82.80. The mentioned level is the confluence of the lower limit of the trading range and a low of September 12. Any follow-through selling will see the next contention level near a low of August 11 at 82.60. On the upside, the upper boundary of the trading range at 83.40 will be a tough nut to crack for USD/INR. If the upside breakout of 83.40 is confirmed, the next upside barrier is seen at a 2023 high of 83.47, en route to the psychological figure at 84.00.
US Dollar price today
The table below shows the percentage change of US Dollar (USD) against listed major currencies today. US Dollar was the strongest against the Swiss Franc.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | 0.00% | -0.02% | -0.06% | -0.20% | -0.09% | -0.22% | 0.06% | |
| EUR | 0.01% | -0.02% | -0.06% | -0.22% | -0.09% | -0.25% | 0.08% | |
| GBP | 0.02% | 0.02% | -0.04% | -0.20% | -0.07% | -0.23% | 0.09% | |
| CAD | 0.06% | 0.05% | 0.04% | -0.17% | -0.03% | -0.17% | 0.12% | |
| AUD | 0.20% | 0.21% | 0.19% | 0.15% | 0.12% | -0.04% | 0.28% | |
| JPY | 0.10% | 0.08% | 0.06% | 0.01% | -0.11% | -0.17% | 0.15% | |
| NZD | 0.23% | 0.25% | 0.23% | 0.18% | 0.04% | 0.16% | 0.32% | |
| CHF | -0.06% | -0.07% | -0.08% | -0.12% | -0.26% | -0.15% | -0.29% |
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 Rupee FAQs
What are the key factors driving the Indian Rupee?
The Indian Rupee (INR) is one of the most sensitive currencies to external factors. The price of Crude Oil (the country is highly dependent on imported Oil), the value of the US Dollar – most trade is conducted in USD – and the level of foreign investment, are all influential. Direct intervention by the Reserve Bank of India (RBI) in FX markets to keep the exchange rate stable, as well as the level of interest rates set by the RBI, are further major influencing factors on the Rupee.
How do the decisions of the Reserve Bank of India impact the Indian Rupee?
The Reserve Bank of India (RBI) actively intervenes in forex markets to maintain a stable exchange rate, to help facilitate trade. In addition, the RBI tries to maintain the inflation rate at its 4% target by adjusting interest rates. Higher interest rates usually strengthen the Rupee. This is due to the role of the ‘carry trade’ in which investors borrow in countries with lower interest rates so as to place their money in countries’ offering relatively higher interest rates and profit from the difference.
What macroeconomic factors influence the value of the Indian Rupee?
Macroeconomic factors that influence the value of the Rupee include inflation, interest rates, the economic growth rate (GDP), the balance of trade, and inflows from foreign investment. A higher growth rate can lead to more overseas investment, pushing up demand for the Rupee. A less negative balance of trade will eventually lead to a stronger Rupee. Higher interest rates, especially real rates (interest rates less inflation) are also positive for the Rupee. A risk-on environment can lead to greater inflows of Foreign Direct and Indirect Investment (FDI and FII), which also benefit the Rupee.
How does inflation impact the Indian Rupee?
Higher inflation, particularly, if it is comparatively higher than India’s peers, is generally negative for the currency as it reflects devaluation through oversupply. Inflation also increases the cost of exports, leading to more Rupees being sold to purchase foreign imports, which is Rupee-negative. At the same time, higher inflation usually leads to the Reserve Bank of India (RBI) raising interest rates and this can be positive for the Rupee, due to increased demand from international investors. The opposite effect is true of lower inflation.