- The Indian Rupee steadies in Wednesday’s early European session.
- The Indian HSBC Services PMI came in at 58.4 in November vs. 58.5 prior, weaker than expected.
- India’s disappointing GDP data, foreign fund outflows and strengthening of the USD weigh on the INR.
- Traders will monitor the US economic data and the Fed Chair Powell’s speech later on Wednesday.
The Indian Rupee (INR) trades on a flat note on Wednesday after reaching its all-time low in the previous session. The latest data released on Wednesday showed that growth in India’s services sector remained strong in November despite the steepest rise in prices for over a decade. The HSBC Services Purchasing Managers Index (PMI) arrived at 58.4 in November versus 58.5 in October, below the market consensus of 59.2. The Indian Rupee remains weak in an immediate reaction to the Services PMI report.
India’s sluggish Gross Domestic Product (GDP) growth, persistent outflows in Indian markets, and significant US Dollar (USD) demand might continue to undermine the local currency in the near term. Nonetheless, the downside for the INR might be limited amid the foreign exchange intervention by the Reserve Bank of India (RBI) via USD sales.
Later on Wednesday, the US ADP Employment Change report, final S&P Global Services PMI, ISM Services PMI and the Fed’s Beige Book will be published. Additionally, the Federal Reserve’s (Fed) Chair Jerome Powell speech will be closely watched as it might offer some hints about the US interest rate outlook in the December meeting.
Indian Rupee remains vulnerable amid geopolitical uncertainties
- “The hiring surge reflected the sector’s improving business confidence, growing new orders, and vigorous international demand,” noted Pranjul Bhandari, chief India economist at HSBC.
- “The RBI may also intervene in the dollar market to provide the rupee with some temporary strength, although broader economic factors will likely keep the rupee under pressure,” said Vishnu Kant Upadhyay, AVP – Research and Advisory at Master Capital Services Ltd.
- The US JOLTs Job Openings increased from 7.372 million in October to 7.744 million openings in November, the US Bureau of Labor Statistics (BLS) reported on Tuesday. This reading was above the market consensus of 7.48 million.
- San Francisco Fed President Mary Daly said on Tuesday that she sees inflation progress and a solid job market, adding that the central bank has to continue to recalibrate policy.
- Chicago Fed President Austan Goolsbee noted, “Over the next year it feels to me like rates come down a fair amount from where they are now, but we meet every six weeks because the conditions change.”
- Fed Governor Adriana Kugler stated that the US economy is in a good position after making significant progress in recent years toward our dual-mandate goals of maximum employment and stable prices.
USD/INR’s uptrend prevails in the longer term
The Indian Rupee trades flat on the day. The constructive outlook of the USD/INR pair remains unchanged as the pair is well supported above the key 100-day Exponential Moving Average (EMA). The path of least resistance level is to the upside as the 14-day Relative Strength Index (RSI) stands above the midline near 67.00, supporting the buyers in the near term.
The all-time high of 84.77 acts as the first upside barrier for USD/INR. A decisive break above the mentioned level could pave the way to the 85.00 psychological mark, en route to 85.50.
On the downside, a breach of the resistance-turned-support at 84.55 could drag the pair lower to 84.22, the low of November 25. The key contention level is located at 84.00, the 100-day EMA and round figure.
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.