- Indian Rupee holds positive ground amid the softer US Dollar.
- Sustained dollar demand from state-run and foreign banks, overseas outflows, and higher crude oil prices might cap the INR’s upside.
- The FOMC Meeting Minutes will be in the spotlight on Tuesday.
Indian Rupee (INR) recovers some lost ground on Tuesday on the decline of the US Dollar Index to the lowest level since late August. On Monday, the Indian Rupee ended lower, matching its record closing low of 83.34 as a decline in the US Dollar (USD) offset the impact of higher crude oil prices. According to S&P Global Ratings, the Indian economy would be somewhat less influenced by global uncertainties owing to the country’s domestic orientation.
Nonetheless, the renewed dollar demand from state-run and foreign banks and foreign funds outflows might exert some selling pressure on the INR in the near term. Market players will monitor the Federal Open Market Committee (FOMC) Meeting Minutes on Tuesday, which might offer hints regarding future policy rate direction and inflation improvement amid the quiet day in terms of economic data releases.
Daily Digest Market Movers: Indian Rupee remains under pressure amid mixed global factors
- India will be a $7-trillion economy by 2030 if the present growth trajectory is maintained, chief economic advisor (CEA) V. Anantha Nageswaran said on Saturday.
- Increasing crude oil prices, foreign funds outflows, and weakness in domestic equities weighed on Indian investor sentiments.
- According to a report in the Reserve Bank of India’s (RBI) monthly bulletin, the momentum of change in India’s GDP is estimated to be higher in October-December due to “ebullient” festive demand.
- According to the RBI, the Indian economy is expected to grow at a 6.5% annual pace between 2023 and 2024. The International Monetary Fund (IMF) has estimated growth of 6.3% every year until 2028.
- RBI is anticipated to maintain the policy rate during its upcoming monetary policy meeting scheduled for December 6-8.
- The India’s Consumer Price Index (CPI) climbed by 4.87% YoY in October versus 5.02% prior, above the market consensus of 4.80%.
- The US October leading indicator dropped 0.8% MoM from the previous reading of 0.7% MoM fall, the Conference Board revealed Monday.
- Investors anticipate the US Federal Reserve (Fed) to begin to cut the rates around the middle of 2024.
- According to CME’s FedWatch Tool, money market futures have priced in 50% chance of a rate cut of at least 25 basis points (bps) by May 2024.
Technical Analysis: Indian Rupee keeps the positive outlook
The Indian Rupee trades firmer on the day. The USD/INR pair has traded within a range of 82.80–83.35 since September. Technically, the USD/INR maintains a bullish bias as the pair holds above the key 100-day Exponential Moving Average (EMA) on the daily chart. This outlook is supported by the 14-day Relative Strength Index (RSI) holding above the 50.0 midline.
The upper boundary of the trading range of 83.35 acts as an immediate resistance level for the pair. Any follow-through buying above 83.35 will pave the way to the year-to-date (YTD) high of 83.47. The next upside target is seen at a psychological round figure at 84.00.
On the flip side, an initial support level for USD/INR is located near the confluence of the lower limit of the trading range and a low of September 12 at 82.80. A decisive break below will see a drop to a low of August 11 at 82.60, en route to a low of August 24 at 82.37.
US Dollar price this week
The table below shows the percentage change of US Dollar (USD) against listed major currencies this week. US Dollar was the weakest against the Japanese Yen.
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.