USD/INR gathers strength following of Indian WPI Inflation data

Indian Rupee loses ground despite the softer USD.
India’s retail inflation came in at 5.69% in December vs. 5.55% prior, weaker than the 5.87% expected.
India’s December WPI inflation came in at 0.73% YoY versus 0.26% prior, below the consensus of 0.90%.

Indian Rupee (INR) trades on a softer note despite the weaker US Dollar (USD). The Ministry of Statistics and Programme Implementation revealed on Friday that India’s retail inflation hit a four-month high of 5.69% in December from 5.55% in November, weaker than the market expectation of 5.87%. While headline retail inflation rose again in December and now spent 51 consecutive months above the Reserve Bank of India's (RBI) medium-term target of 4%, it continues to remain close to the Reserve Bank of India's (RBI) tolerance range of 2–6%.

Looking ahead, risk sentiment is likely to remain the key driver behind the USD/INR’s price action in the absence of US top-tier economic data due to the Martin Luther King Jr.'s Birthday bank holiday

Daily Digest Market Movers: Indian Rupee’s upside might be limited amid the ongoing tensions in the Red Sea

India’s December WPI inflation came in at 0.73% YoY versus 0.26% prior, below the consensus of 0.90%.
India’s Wholesale Price Food Index arrived at 5.39% YoY in December.
India’s WPI Manufacturing Inflation fell 0.71% YoY in December from a 0.64% drop in the previous reading.
According to the PHD Research Bureau, India's economy will grow to over USD 4 trillion in the next two years, with a stabilized inflation rate of 4.5%.
Houthi attacks on commercial ships in the Red Sea would negatively impact oil-importing countries, including India, said the World Economic Forum (WEF) president Borge Brende.
The US Producer Price Index (PPI) for December rose by 1.0% YoY from the revised 0.8% increase in November, below the market consensus of 1.3%.
The annual core PPI, which excludes volatile food and energy prices, climbed by 1.8% in December from 2.0% in the previous reading and weaker than the expectation of 1.9%. The monthly core PPI remained unchanged for the third consecutive month.
According to the CME FedWatch Tool, investors are pricing in 74.2% odds of a rate cut in March, up from 70% last week.

Technical Analysis: Indian Rupee’s outlook remains weak in the shorter term

Indian Rupee trades softer on the day. The USD/INR pair has remained stuck within the 82.80-83.40 trading range since September 2023. Technically, USD/INR exhibits a bearish vibe as the pair holds below the key 100-period Exponential Moving Average (EMA) on the daily chart. The negative outlook is supported by the 14-day Relative Strength Index (RSI) which is below the 50.0 midpoint, suggesting the path of least resistance is to the downside.

A breach of the key support level of 82.80, the lower limit of the trading range and a low of September 12, will see a drop to a low of August 11 at 82.60. The next contention level is seen near a low of August 24 at 82.40. On the upside, the support-turned-resistance at 83.00 acts as an immediate upside barrier for USD/INR. Further north, the upper boundary of the trading range at 83.40 will be the additional upside filter to watch, 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 strongest against the New Zealand Dollar.

	USD	EUR	GBP	CAD	AUD	JPY	NZD	CHF
USD		-0.04%	0.00%	-0.03%	0.03%	-0.03%	0.06%	0.01%
EUR	0.06%		0.03%	-0.01%	0.06%	0.01%	0.10%	0.05%
GBP	-0.01%	-0.03%		-0.04%	0.02%	-0.02%	0.07%	0.02%
CAD	0.05%	0.00%	0.05%		0.06%	0.00%	0.10%	0.06%
AUD	-0.03%	-0.06%	0.00%	-0.05%		-0.03%	0.05%	0.01%
JPY	0.04%	-0.04%	-0.11%	-0.01%	0.06%		0.09%	0.04%
NZD	-0.06%	-0.13%	-0.07%	-0.11%	-0.05%	-0.09%		-0.05%
CHF	0.00%	-0.06%	-0.02%	-0.06%	0.01%	-0.05%	0.04%

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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