Market news

13 February 2024

USD/INR recovers some lost ground ahead of Indian WPI, US CPI data

  • Indian Rupee loses momentum on the firmer USD, higher crude oil prices. 
  • India's retail inflation has eased to a three-month low in January from December's four-month high of 5.69%.
  • India’s Wholesale Price Index (WPI) Food, Fuel, and Inflation for January will be the highlight on Tuesday ahead of US CPI data.

Indian Rupee (INR) weakens on Tuesday amid a stronger US Dollar (USD) and a bounce back in crude oil prices. The Indian economy showed evidence of resilience at the start of the year, with Industrial Production improving and inflation falling, according to data published on Monday.

India's inflation dropped to a three-month low in January due to the cooling of food prices. The inflation rate has stayed within its tolerance range of 2–6% for the fifth consecutive month. Food inflation came in at 8.30% in January versus 9.53% in December. 

The Reserve Bank of India (RBI) Monetary Policy Committee (MPC) maintained its inflation forecast for FY24 at 5.4% at its February meeting, despite  concerns on rising food prices and uncertainty around crude oil prices. The Indian central bank further stated that it expects inflation to reach 5% in the current quarter ending March 31.

Looking ahead, India’s Wholesale Price Index (WPI) Food, Fuel, and Inflation for January will be released on Wednesday. On the US front, market players will closely monitor the January CPI report on Tuesday. Later this week, the Retail Sales and Producer Price Index (PPI) for January will be due on Thursday and Friday, respectively. 

Daily Digest Market Movers: Indian Rupee remains sensitive amid multiple headwinds

  • India’s Consumer Price Index (CPI) rose 5.10% YoY in January from 5.69% in the previous reading, better than the market expectation of 5.09%. 
  • Indian Industrial Production for December improved to 3.8% YoY compared to the previous reading and the consensus of 2.4%. 
  • Indian Manufacturing Output came in at 3.9% MoM in December, versus 1.2% prior. 
  • India’s foreign exchange reserves rose by USD 5.736 billion to USD 622.469 billion for the week ended February 2, according to the Reserve Bank of India. 
  • Several Fed officials suggested that they want more time to observe whether inflation continues to decline.  
  • The US CPI headline inflation is estimated to ease from 3.4% to 2.9% YoY, and the core figure is forecast to drop from 3.9% to 3.7% YoY.

Technical Analysis: Indian Rupee moves up within a multi-month descending trend channel

Indian Rupee trades on a weaker note on the day. USD/INR remains stuck within a multi-month descending trend channel of 82.70–83.20.

In the short term, the bearish outlook of USD/INR remains intact, as the pair is below the key 100-period Exponential Moving Average (EMA) on the daily chart. The downward momentum is supported by the 14-day Relative Strength Index, which stands below the 50.0 midline, indicating the sellers are likely to stay in control.

The initial support level of the pair is seen near a low of February 2 at 82.83. Further south, the key contention level will emerge near the lower limit of the descending trend channel at 82.70. A potential bearish breakout below this level could drag the pair lower to a low of August 23 at 82.45, followed by a low of June 1 at 82.25.

On the bright side, the confluence of the upper boundary of the descending trend channel, the psychological round figure, and the 100-period EMA at the 83.00–83.05 regions will be the critical resistance levels to watch. A decisive break above this zone will see a rally to a high of January 18 at 83.20, en route to a high of January 2 at 83.35, and the 84.00 psychological level. 

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 New Zealand Dollar.

USD   0.09% 0.11% 0.03% 0.14% 0.03% 0.49% 0.08%
EUR -0.09%   0.02% -0.05% 0.05% -0.06% 0.39% -0.01%
GBP -0.10% -0.01%   -0.07% 0.05% -0.07% 0.39% -0.01%
CAD -0.04% 0.03% 0.07%   0.08% 0.00% 0.44% 0.05%
AUD -0.14% -0.05% -0.03% -0.10%   -0.10% 0.35% -0.03%
JPY -0.03% 0.07% 0.08% 0.00% 0.11%   0.45% 0.06%
NZD -0.51% -0.40% -0.38% -0.45% -0.35% -0.45%   -0.41%
CHF -0.09% 0.01% 0.02% -0.04% 0.04% -0.05% 0.40%  

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.

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