USD/INR struggles to gain on the lower US yields, eyes on US PCE data
|- Indian Rupee attracts some buyers despite the stronger GDP figure.
- The higher Treasury bond yields, Middle East geopolitical conflicts might cap the INR’s upside.
- Investors will monitor the US Core Personal Consumption Expenditures Price Index (PCE) data, which is expected to ease in September.
Indian Rupee (INR) holds positive ground on Friday. The USD/INR pair loses momentum on the lower US Treasury bond yields despite the upbeat US Gross Domestic Product (GDP) figures. Nonetheless, the Indian Rupee remains sensitive to market sentiment and the Middle East escalating tension headline could limit the INR’s upside in the near term.
Market participants will keep an eye on the US Core Personal Consumption Expenditures Price Index (PCE), due later on Friday. Next week, the attention will shift to the Federal Reserve’s Federal Open Market Committee (FOMC) meeting. The markets anticipate FOMC to keep the interest rate unchanged at its meeting scheduled for November 2.Furthermore, the Reserve Bank of India (RBI) is set to meet with top bank officials next week to discuss the current liquidity condition in the banking system.
Daily Digest Market Movers: Indian Rupee gains ground amid the uncertainty
- Equity-related outflows have also kept the Indian Rupee under pressure as foreign investors sold $1.67 billion in Indian equities in October.
- US Q3 GDP expanded at an annualized rate of 4.9%, above the market consensus of 4.2%.
- US Durable Goods Orders rose 4.7% MoM in September versus a 0.1% drop in August, beating market expectations of 1.5%.
- US Initial Jobless Claims for the week ending October 21 climbed to 210K from the prior week's data of 200K, exceeding estimates.
- US Continuing claims rose by 63,000, the highest reading since May.
- The Reserve Bank of India (RBI) is likely to meet with top bank officials next week to discuss the current liquidity condition in the banking system.
- The RBI's monetary policy committee said the central bank will continue monitoring on maintaining inflation at the 4% target.
- RBI estimated India's Gross Domestic Product (GDP) will grow at 6.5% in the current fiscal year.
- The International Monetary Fund (IMF) raised its forecast growth rate for India to 6.3% in October.
- RBI's October bulletin suggested growth in India is expected to gain momentum for the remainder of 2023.
- India’s Wholesale Price Index (WPI), a measure of inflation, dropped -0.26% YoY in September versus 0.52% prior, below the market expectation of 0.50%.
Technical Analysis: The Indian Rupee trades firmly above the critical support level
The Indian Rupee trades firmly on the day. The USD/INR pair trades within a range of 83.00-83.35. Meanwhile, the pair holds above the 100- and 200-day Exponential Moving Averages (EMA) on the daily chart, suggesting the upward bias remains intact for the pair.
That being said, any follow-through buying above 83.35 will see a rally to year-to-date (YTD) highs of 83.45. Further north, the next barrier will emerge at a psychological round mark at 84.00. On the flip side, the key contention level is located at 83.00, representing a low of October 20 and a round figure. A decisive break below the latter could see a drop to 82.82 (low of September 12), en route to 82.65 (low of August 4).
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 Australian Dollar.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | 0.27% | 0.16% | 0.74% | -0.21% | 0.30% | 0.39% | 0.84% | |
| EUR | -0.27% | -0.12% | 0.48% | -0.47% | 0.05% | 0.13% | 0.59% | |
| GBP | -0.15% | 0.13% | 0.60% | -0.36% | 0.17% | 0.26% | 0.71% | |
| CAD | -0.73% | -0.44% | -0.59% | -0.90% | -0.42% | -0.34% | 0.13% | |
| AUD | 0.18% | 0.46% | 0.35% | 0.94% | 0.51% | 0.58% | 1.06% | |
| JPY | -0.30% | -0.04% | -0.16% | 0.40% | -0.51% | 0.08% | 0.54% | |
| NZD | -0.40% | -0.14% | -0.26% | 0.35% | -0.61% | -0.08% | 0.47% | |
| CHF | -0.86% | -0.58% | -0.71% | -0.12% | -1.08% | -0.54% | -0.46% |
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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