USD/INR loses traction ahead of US Services PMI data
|- Indian Rupee edges higher amid the decline in oil prices, US Treasury bond yields.
- The Reserve Bank of India (RBI) is likely to maintain an interest rate pause at 6.50% at its December meeting.
- Market players await the US Services PMI data, due later on Tuesday.
Indian Rupee (INR) trades stronger on Tuesday on the decline in oil prices and lower US Treasury bond yields. Prime Minister Narendra Modi's Bharatiya Janata Party won the elections in three of the five Indian states that had recently gone to the polls. That being said, the election results will likely be positive for equities inflows, alleviating some pressure on INR devaluation in the near term.
The Reserve Bank of India (RBI) is expected to announce a continuation of its pause on the interest rate at 6.50% and maintain a hawkish stance on Friday. Analysts predict a fifth consecutive pause by the Monetary Policy Committee (MPC) due to concerns about potential food price shocks affecting inflation expectations.
Ahead of the RBI interest rate decision, investors will keep an eye on the US ISM Services PMI, due later on Tuesday. The figure is expected to rise from 51.8 to 52.0.
Daily Digest Market Movers: Indian Rupee gains traction amid multiple headwinds
- S&P Global India Services Purchasing Managers' Index dropped to 56.9 in November from 58.4 in October, below market expectations of 58.0. The figure registered the slowest pace of expansion since November last year.
- RBI is likely to be selling the US dollar near the 83.38–83.39 Rupee levels, per Reuters.
- RBI Governor Shaktikanata Das said that headline inflation has moderated, and the Indian economy remains vulnerable to overlapping food price shocks coming from global factors and adverse weather events.
- India’s second-quarter Gross Domestic Product grew 7.6%, marking her the world’s fastest-growing major economy, driven by manufacturing and the government's spending.
- US Factory Orders fell 3.6% MoM in October from the previous reading of 2.3%.
- US ISM Manufacturing PMI remained unchanged at 46.7 in November, weaker than expected.
- According to the CME FedWatch Tool, Fed futures are pricing in a 60% odds of a rate cut at the Fed's March meeting, up from 21% over a week ago.
Technical Analysis: Indian Rupee’s positive outlook remains unchanged
Indian Rupee drifts higher on the day. The USD/INR pair has traded within a familiar trading band of 82.80–83.40 since September. From the technical perspective, the bullish tone of USD/INR will prevail as long as the pair holds above the key 100-day Exponential Moving Average (EMA) on the daily chart. This upward momentum is supported by the 14-day Relative Strength Index (RSI) that bounced off the 50.0 midline, indicating the further upside looks favorable.
A decisive break above the upper boundary of the trading range of 83.40 will pave the way to the year-to-date (YTD) high of 83.47, en route to a psychological round figure of 84.00. On the flip side, the critical support level is seen at the 83.00 psychological mark. Further south, the next contention to watch is the confluence of the lower limit of the trading range and a low of September 12 at 82.80, followed by a low of August 11 at 82.60.
US Dollar price in the last 7 days
The table below shows the percentage change of US Dollar (USD) against listed major currencies in the last 7 days. US Dollar was the weakest against the Japanese Yen.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | 1.12% | 0.01% | -0.34% | 0.53% | -1.13% | -0.79% | -0.90% | |
| EUR | -1.13% | -1.13% | -1.47% | -0.60% | -2.26% | -1.93% | -2.04% | |
| GBP | -0.01% | 1.12% | -0.33% | 0.53% | -1.13% | -0.79% | -0.90% | |
| CAD | 0.31% | 1.42% | 0.31% | 0.84% | -0.80% | -0.48% | -0.58% | |
| AUD | -0.53% | 0.58% | -0.53% | -0.87% | -1.66% | -1.32% | -1.41% | |
| JPY | 1.11% | 2.22% | 1.12% | 0.79% | 1.64% | 0.32% | 0.23% | |
| NZD | 0.81% | 1.93% | 0.82% | 0.48% | 1.34% | -0.30% | -0.06% | |
| CHF | 0.89% | 2.00% | 0.89% | 0.57% | 1.42% | -0.23% | 0.11% |
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).
Interest rates FAQs
What are interest rates?
Interest rates are charged by financial institutions on loans to borrowers and are paid as interest to savers and depositors. They are influenced by base lending rates, which are set by central banks in response to changes in the economy. Central banks normally have a mandate to ensure price stability, which in most cases means targeting a core inflation rate of around 2%.
If inflation falls below target the central bank may cut base lending rates, with a view to stimulating lending and boosting the economy. If inflation rises substantially above 2% it normally results in the central bank raising base lending rates in an attempt to lower inflation.
How do interest rates impact currencies?
Higher interest rates generally help strengthen a country’s currency as they make it a more attractive place for global investors to park their money.
How do interest rates influence the price of Gold?
Higher interest rates overall weigh on the price of Gold because they increase the opportunity cost of holding Gold instead of investing in an interest-bearing asset or placing cash in the bank.
If interest rates are high that usually pushes up the price of the US Dollar (USD), and since Gold is priced in Dollars, this has the effect of lowering the price of Gold.
What is the Fed Funds rate?
The Fed funds rate is the overnight rate at which US banks lend to each other. It is the oft-quoted headline rate set by the Federal Reserve at its FOMC meetings. It is set as a range, for example 4.75%-5.00%, though the upper limit (in that case 5.00%) is the quoted figure.
Market expectations for future Fed funds rate are tracked by the CME FedWatch tool, which shapes how many financial markets behave in anticipation of future Federal Reserve monetary policy decisions.
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