- Indian Rupee trades weaker on the rebound in oil prices, USD demand.
- Global uncertainties will have a limited impact on the Indian economy.
- Market players will monitor the FOMC Meeting Minutes on Tuesday for fresh impetus.
Indian Rupee (INR) sticks to its modest intraday losses on Monday due to the recovery in oil prices and US demand from the local companies. Last week, S&P Global Ratings published a report indicating that slower external demand and sluggish global growth will impact economic activity and may contribute to further inflation. Nonetheless, the Indian economy will be marginally less affected by global uncertainties due to the country being domestically oriented.
Investors will focus on the Federal Open Market Committee (FOMC) Meeting Minutes on Tuesday. The report could provide some hints about future policy rate direction and inflation improvement. Market participants raised bets that the Federal Reserve (Fed) is done with the hiking cycle and priced in rate cuts of 100 basis points (bps) in the first half of 2024.
Daily Digest Market Movers: Indian Rupee faces limited risk from multiple headwinds and uncertainties
- The momentum of change in India’s GDP is sequentially expected to be higher in October-December on the back of "ebullient" festival demand, according to a report in the Reserve Bank of India’s (RBI) monthly bulletin.
- According to the RBI, the Indian economy will see a GDP growth rate of 6.5% in 2023-24.
- The central bank also stated India's growth remains dependent on domestic demand, which provides a cushion against external shocks.
- RBI is expected to maintain the policy rate at its next monetary policy meeting, which is scheduled for December 6-8.
- India's headline retail price inflation for October fell to 4.9% from 5% the previous month, the lowest reading in four months.
- India's Wholesale Price Index (WPI) inflation arrived at -0.52% from -0.26%,previously, worse than the market consensus of -0.20%.
- The Consumer Price Index (CPI) in India grew by 4.87% year on year in October, compared to 5.02% the previous month, above the market estimate of 4.80%.
- US Housing Starts climbed by 1.9% MoM to 1.372M, better than the expectation of 1.350M. Building Permits rose by 1.1% to 1.487M, above the estimation of 1.450M.
- Federal Reserve (Fed) officials remarked on the prospects for monetary policy last week and were consistent in their tone.
- Boston Fed President Susan Collins said the central bank might bring down inflation without harming the labor market by being "patient" with future interest rate hikes.
- Fed President Austan Goolsbee stated that inflation is on pace to meet the Fed's target as long as house price pressures decrease.
Technical Analysis: The Indian Rupee keeps the bearish outlook unchanged
The Indian Rupee trades softer on the day. The USD/INR pair has traded within a wider range of 82.80–83.35 since September. From a technical perspective, the USD/INR maintains a bullish vibe as the pair holds above the key 100-day Exponential Moving Average (EMA) on the daily chart. This notion is backed by the 14-day Relative Strength Index (RSI) holding above the 50.0 midline.
The first USD/INR upside barrier is near the upper boundary of the trading range of 83.35. A decisive break above 83.35 could open the door to challenge the year-to-date (YTD) high of 83.47. Further north, the additional upside filter to watch is a psychological round figure at 84.00.
On the other hand, the confluence of the lower limit of the trading range and a low of September 12 at 82.80 act as an initial support level for the pair. If the sellers drag prices below 82.80, the next contention will emerge at a low of August 11 at 82.60, followed by a low of August 24 at 82.37.
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.
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).
Risk sentiment FAQs
What do the terms"risk-on" and "risk-off" mean when referring to sentiment in financial markets?
In the world of financial jargon the two widely used terms “risk-on” and “risk off'' refer to the level of risk that investors are willing to stomach during the period referenced. In a “risk-on” market, investors are optimistic about the future and more willing to buy risky assets. In a “risk-off” market investors start to ‘play it safe’ because they are worried about the future, and therefore buy less risky assets that are more certain of bringing a return, even if it is relatively modest.
What are the key assets to track to understand risk sentiment dynamics?
Typically, during periods of “risk-on”, stock markets will rise, most commodities – except Gold – will also gain in value, since they benefit from a positive growth outlook. The currencies of nations that are heavy commodity exporters strengthen because of increased demand, and Cryptocurrencies rise. In a “risk-off” market, Bonds go up – especially major government Bonds – Gold shines, and safe-haven currencies such as the Japanese Yen, Swiss Franc and US Dollar all benefit.
Which currencies strengthen when sentiment is "risk-on"?
The Australian Dollar (AUD), the Canadian Dollar (CAD), the New Zealand Dollar (NZD) and minor FX like the Ruble (RUB) and the South African Rand (ZAR), all tend to rise in markets that are “risk-on”. This is because the economies of these currencies are heavily reliant on commodity exports for growth, and commodities tend to rise in price during risk-on periods. This is because investors foresee greater demand for raw materials in the future due to heightened economic activity.
Which currencies strengthen when sentiment is "risk-off"?
The major currencies that tend to rise during periods of “risk-off” are the US Dollar (USD), the Japanese Yen (JPY) and the Swiss Franc (CHF). The US Dollar, because it is the world’s reserve currency, and because in times of crisis investors buy US government debt, which is seen as safe because the largest economy in the world is unlikely to default. The Yen, from increased demand for Japanese government bonds, because a high proportion are held by domestic investors who are unlikely to dump them – even in a crisis. The Swiss Franc, because strict Swiss banking laws offer investors enhanced capital protection.
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