USD/INR weakens ahead of US CPI data
|- Indian Rupee attracts some buyers on the weaker USD and robust foreign inflows.
- India is on track to become one of the top three global economies, Indian Prime Minister Modi said.
- The US Consumer Price Index (CPI) for December will be a closely watched event on Thursday.
Indian Rupee (INR) trades on a positive note on Thursday, supported by robust foreign inflows. On Wednesday, India’s Prime Minister Narendra Modi stated that India is set to become one of the top three global economies. Modi acknowledged India's economic development as a decade of structural reforms that improved the country's capacity and competitiveness amid global headwinds.
The highlight on Thursday will be the US inflation report, as measured by the Consumer Price Index (CPI). The stronger-than-expected inflation data could lift the US Dollar and potentially delay a rate cut from the Federal Reserve (Fed). On Friday, attention will shift to the December Indian CPI, Industrial Production, and Manufacturing Output.
Daily Digest Market Movers: Indian Rupee remains strong amid challenges from external factors
- The Indian government plans to cut its fiscal deficit by at least 50 basis points (bps) in fiscal year 2025.
- The Indian government plans to increase capital spending by up to 20% in fiscal year 2025.
- On February 1, Finance Minister Nirmala Sitharaman will unveil the 2024/25 budget.
- The World Bank kept its FY25 economic growth projection for India unchanged at 6.4%, owing to strong domestic demand, rising public infrastructure spending, and strong private-sector credit growth.
- Bloomberg Index Services proposed including eligible Indian bonds in its emerging market local currency index from September.
- Finance Minister Nirmala Sitharaman said on Wednesday that India is estimated to be a $5 trillion economy by 2027–28 and become the third largest economy.
- New York Federal Reserve (Fed) President John Williams said that interest rates in the US will likely need to stay high “for some time” until the central bank is confident that inflation is returning to 2%.
- Atlanta Fed Bank President Raphael Bostic emphasized that monetary policy needs to stay tight while inflation remains above the 2% target. Fed’s Bowman stated that the policy is sufficiently restrictive.
- The US Consumer Price Index (CPI) data for December will be due on Thursday at 13:30 GMT. The Core CPI is estimated to show an increase of 3.8% YoY, while headline inflation is projected to grow 3.2% YoY versus 3.1% prior.
Technical Analysis: Indian Rupee could see a downleg in the near term
Indian Rupee trades strongly on the day. The USD/INR pair remains stuck within a multi-month trading range between 82.80 and 83.40. According to the daily chart, USD/INR resumes a bearish outlook in the shorter timeframe as the pair holds below the key 100-period Exponential Moving Average (EMA). Additionally, the downward momentum is supported by the 14-day Relative Strength Index (RSI) that stands below the 50.0 midpoint.
A breach below the 83.00 psychological level will see a drop to the critical contention level at 82.80, portraying the confluence of the lower limit of the trading range and a low of September 12. Further south, the next downside target is located at a low of August 11 at 82.60. On the other hand, the immediate resistance level for USD/INR will emerge near the upper boundary of the trading range at 83.40. A break above 83.40 will expose a 2023 high of 83.47, followed by 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 weakest against the New Zealand Dollar.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | -0.11% | -0.22% | -0.16% | -0.28% | -0.22% | -0.40% | -0.18% | |
| EUR | 0.13% | -0.09% | -0.04% | -0.15% | -0.09% | -0.28% | -0.04% | |
| GBP | 0.21% | 0.11% | 0.05% | -0.05% | 0.00% | -0.20% | 0.05% | |
| CAD | 0.17% | 0.06% | -0.05% | -0.11% | -0.05% | -0.23% | 0.01% | |
| AUD | 0.28% | 0.19% | 0.09% | 0.09% | 0.09% | -0.12% | 0.14% | |
| JPY | 0.22% | 0.11% | 0.00% | 0.04% | -0.07% | -0.19% | 0.04% | |
| NZD | 0.41% | 0.33% | 0.21% | 0.25% | 0.14% | 0.20% | 0.27% | |
| CHF | 0.17% | 0.06% | -0.05% | 0.00% | -0.11% | -0.05% | -0.23% |
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
How does the Indian economy impact the Indian Rupee?
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.
What is the impact of Oil prices on the Rupee?
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.
How does inflation in India impact 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.
How does seasonal US Dollar demand from importers and banks impact 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.
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