USD/INR edges lower ahead of US Michigan sentiment data

Indian Rupee holds positive ground on the modest decline in the USD.
RBI’s Das said that it’s too early to talk about rate cuts until the 4% inflation target is achieved on a sustained basis.
Investors will monitor the preliminary US Michigan Consumer Sentiment Index for January for fresh impetus.

Indian Rupee (INR) gains traction on Friday amid a modest decline in the US Dollar (USD). However, the INR’s upside might be capped due to the rise in US Treasury bond yields after the upbeat US economic data. Furthermore, the rebound in oil prices amid the geopolitical tension in the Red Sea might also weigh on the Indian Rupee as the country is the third largest consumer of crude oil in the world.

Reserve Bank of India (RBI) Governor Shaktikanta Das said on Thursday in Davos that it would be premature to talk about cuts in the key policy rate until the inflation target is achieved on a durable basis. When asked whether a rate cut was possible in the second half of 2024, RBI’s Das said that average inflation is estimated to reach 4.5% in fiscal years 2024–25 and it would depend on many factors. He further stated that the central bank’s focus is to remain actively disinflationary and lower CPI inflation to 4% on a sustained basis.

Later on Friday, the preliminary US Michigan Consumer Sentiment Index and Existing Home Sales will be due. FOMC members M. Daly (San Francisco) and M. Barr (Board of Governors) are scheduled to deliver speeches. The stronger-than-expected US economic data, along with Fed officials pushing back on rate expectations, could exert some selling pressure on the Indian Rupee.

Daily Digest Market Movers: Indian Rupee seems vulnerable amid geopolitical tensions risks

India is estimated to grow by at least 7% in 2024–25, higher than what the RBI forecast in December, according to the Reserve Bank of India's (RBI) January bulletin.
The RBI's Bulletin highlights the shift from consumption to investment as a key factor driving India's economic growth.
Das said that Consumer Price Index (CPI) inflation has decreased from a peak of 7.8% amid the Ukraine-Russia conflict to within the RBI's target range of 2–6%.
The US weekly Initial Jobless Claims fell to 187K for the week ended January 13 from the previous reading of 203K, stronger than the market expectation of 207K.
The total for continuing claims hit 1.806 million, better than the 1.845 million expected.
The Philadelphia Fed Manufacturing Survey improved to -10.6 in January from -12.8 in December.
Atlanta Federal Reserve (Fed) President Raphael Bostic anticipates that policymakers will start cutting interest rates in the third quarter of this year, as inflation is approaching the central bank’s target.
The Fed Funds futures market is pricing in 57% odds of the first rate cuts as early as March, according to the CME FedWatch tool.

Technical Analysis: Indian Rupee keeps trading range-bound between 82.80 and 83.40

Indian Rupee trades firmly on the day. The USD/INR pair remains traded in a familiar multi-month-old trading band between 82.80 and 83.40. USD/INR holds above the key 100-period Exponential Moving Average (EMA) on the daily chart. However, the 14-day Relative Strength Index (RSI) hovers around the 50.0 midline, indicating directionless in the near term.

The first upside barrier will emerge near the upper boundary of the trading range at 83.40. Any follow-through buying will pave the way to a 2023 high of 83.47, followed by the 84.00 round figure. On the flip side, the initial support level is seen at the 83.00 psychological mark. A decisive break below 83.00 will expose 82.80 (the lower limit of the trading range, low of January 15), and finally at 82.60 (low of August 11).

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 Euro.

	USD	EUR	GBP	CAD	AUD	JPY	NZD	CHF
USD		0.00%	0.10%	0.08%	0.16%	0.38%	0.42%	0.09%
EUR	0.00%		0.09%	0.07%	0.13%	0.37%	0.41%	0.10%
GBP	-0.10%	-0.10%		-0.03%	0.03%	0.28%	0.29%	0.00%
CAD	-0.08%	-0.10%	0.03%		0.05%	0.30%	0.33%	0.01%
AUD	-0.13%	-0.10%	0.00%	-0.05%		0.26%	0.28%	-0.04%
JPY	-0.38%	-0.37%	-0.26%	-0.30%	-0.22%		0.05%	-0.29%
NZD	-0.40%	-0.41%	-0.29%	-0.33%	-0.26%	-0.01%		-0.32%
CHF	-0.10%	-0.06%	0.01%	-0.02%	0.05%	0.31%	0.32%

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).

Inflation FAQs

What is inflation?

Inflation measures the rise in the price of a representative basket of goods and services. Headline inflation is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core inflation excludes more volatile elements such as food and fuel which can fluctuate because of geopolitical and seasonal factors. Core inflation is the figure economists focus on and is the level targeted by central banks, which are mandated to keep inflation at a manageable level, usually around 2%.

What is the Consumer Price Index (CPI)?

The Consumer Price Index (CPI) measures the change in prices of a basket of goods and services over a period of time. It is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core CPI is the figure targeted by central banks as it excludes volatile food and fuel inputs. When Core CPI rises above 2% it usually results in higher interest rates and vice versa when it falls below 2%. Since higher interest rates are positive for a currency, higher inflation usually results in a stronger currency. The opposite is true when inflation falls.

What is the impact of inflation on foreign exchange?

Although it may seem counter-intuitive, high inflation in a country pushes up the value of its currency and vice versa for lower inflation. This is because the central bank will normally raise interest rates to combat the higher inflation, which attract more global capital inflows from investors looking for a lucrative place to park their money.

How does inflation influence the price of Gold?

Formerly, Gold was the asset investors turned to in times of high inflation because it preserved its value, and whilst investors will often still buy Gold for its safe-haven properties in times of extreme market turmoil, this is not the case most of the time. This is because when inflation is high, central banks will put up interest rates to combat it.
Higher interest rates are negative for Gold because they increase the opportunity-cost of holding Gold vis-a-vis an interest-bearing asset or placing the money in a cash deposit account. On the flipside, lower inflation tends to be positive for Gold as it brings interest rates down, making the bright metal a more viable investment alternative.

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