- Indian Rupee drifts lower despite the weaker USD.
- Three union ministers said India’s economic growth now is not only high but also inclusive.
- US GDP Annualized (Q4) and the Core PCE data will be the key events to watch this week.
Indian Rupee trades on a negative note on Monday despite the decline of the US Dollar (USD). Three union ministers said at the World Economic Forum Annual Meeting 2024 last week that the country's economic growth now is not only high but also inclusive. They further stated that as China’s economy slows down, India’s relatively rapid growth stands out as a clear opportunity for investors in Davos looking for bright spots. However, India still faces plenty of challenges as the INR has weakened heavily, pressured by high US interest rates and volatile oil prices.
The Bombay Stock Exchange (BSE) and National Exchange (NSE) will be closed on Monday due to the Ayodhya Ram Mandir ‘Pran Pratishtha’ ceremony. The two key events this week will be the preliminary US Gross Domestic Product Annualized for the fourth quarter (Q4), due on Thursday. On Friday, the December Core Personal Consumption Expenditures Price Index (Core PCE) will be in the spotlight.
Daily Digest Market Movers: Indian Rupee remains sensitive to the multiple challenges
- India's foreign exchange reserves increased USD 1.634 billion to USD 618.937 billion for the week ended January 12, according to the Reserve Bank of India (RBI).
- The RBI Governor Shaktikanta Das said that the central bank won’t consider interest rate cuts unless inflation is achieved around the 4% target on a durable basis.
- India's Gross Domestic Product (GDP) grew 7.2% in the last fiscal year, down from just over 9% a year earlier.
- The US Michigan Consumer Sentiment Index rose to 78.8, the highest level since July 2021. The assessment of current economic conditions grew to 83.3, and the expectations component climbed to 75.9.
- The monthly and annual Core Personal Consumption Expenditures Price Index (Core PCE) are expected to show an increase of 0.2% MoM and 3% YoY, respectively.
- According to the CME FedWatch Tool, the odds for a cut at the March meeting fell to 49.3%, a slide from 81% just a week ago.
- Fed’s Daly said that it’s premature to think interest rate cuts are around the corner.
Technical Analysis: Indian Rupee keeps the range within 82.80–83.40
Indian Rupee trades softer on the day. The USD/INR pair has traded within a familiar trading range between 82.80 and 83.40 since September 2023. USD/INR seems vulnerable above the key 100-period Exponential Moving Average (EMA) on the daily chart. However, the 14-day Relative Strength Index (RSI) stands below the 50.0 midline, indicating that further decline cannot be ruled out.
The key resistance level will emerge at the upper boundary of the trading range at 83.40. A break above the mentioned level will see a rally to a 2023 high of 83.47, en route to the 84.00 round figure. On the downside, the 83.00 psychological mark acts as an initial support level for USD/INR. Further south, the next contention level is located at the confluence of the lower limit of the trading range and a low of January 15 at 82.80, and finally a low of August 11 at 82.60.
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 | -0.14% | -0.14% | 0.00% | 0.07% | -0.05% | 0.11% | -0.07% | |
| EUR | 0.14% | -0.01% | 0.13% | 0.20% | 0.08% | 0.25% | 0.08% | |
| GBP | 0.14% | 0.00% | 0.13% | 0.21% | 0.08% | 0.26% | 0.07% | |
| CAD | -0.01% | -0.13% | -0.14% | 0.07% | -0.05% | 0.12% | -0.06% | |
| AUD | -0.08% | -0.21% | -0.22% | -0.07% | -0.12% | 0.05% | -0.14% | |
| JPY | 0.04% | -0.11% | -0.06% | 0.03% | 0.13% | 0.18% | -0.02% | |
| NZD | -0.12% | -0.26% | -0.27% | -0.13% | -0.05% | -0.18% | -0.20% | |
| CHF | 0.05% | -0.08% | -0.07% | 0.07% | 0.14% | 0.01% | 0.18% |
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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