- Indian Rupee gains ground despite the firmer US Dollar ahead of a key US event.
- The Federal Reserve is widely expected to keep the benchmark overnight rate steady in the 5.25%–5.50% range.
- Investors await the FOMC interest rate decision and press conference ahead of the Indian Interim Budget 2024.
Indian Rupee (INR) trades on a stronger note on Wednesday. However, the upside of the pair might be capped as traders prefer to wait on the sidelines ahead of the Federal Reserve's Open Market Committee's (FOMC) interest rate decision.
India has attracted attention with its standout growth trajectory. Indian Chief Economic Adviser, V Anantha Nageswaran, stated that India can aspire to become a $7 trillion economy by 2030. However, the risk of sticky inflation and higher oil prices amid the Middle East geopolitical tension might impact the Indian economy.
The Federal Reserve is widely anticipated to leave benchmark interest rates unchanged at a 23-year high of 5.25–5.5% at its January meeting. The prospects that the first Fed rate cut will happen at the March meeting have faded as the economy continues to show surprising strength. According to the CME FedWatch Tool, the markets have priced in 85% odds of a rate cut at the May meeting.
Later on Wednesday, FOMC is set to announce its rate decision at 19.00 GMT and Chairman Jerome Powell will hold a press conference at 19.30 GMT. Powell’s speech could provide information on the central bank's outlook and offer some hints about the timeline of rate cuts in 2024. Apart from this, India’s S&P Global Manufacturing PMI for January will be due on Thursday. All eyes will be on the Indian Interim Budget 2024 for fiscal year 2024–25.
Daily Digest Market Movers: Indian Rupee remains resilient amid global headwinds
- The International Monetary Fund (IMF) has raised its 2024-25 India’s GDP growth forecast to 6.5% compared with the 6.3% projected earlier.
- India's foreign exchange reserves dropped $2.79 billion to $616.14 billion for the week ending on January 19, according to the Reserve Bank of India (RBI).
- India's finance minister will present the federal budget for 2024–25 on Thursday, with expectations that the government will lower its fiscal deficit by at least 50 basis points (bps).
- The Indian Rupee became the best-performing currency in Asian markets in January 2024, rising by 1% to 2%.
- The National Statistical Office (NSO) forecasted an Indian growth rate of 7.3% for FY24, compared to 7.2% for FY23.
- The number of job openings in the US rose to 9.026 million in December, above the November figure, which was revised up to 8.925 million.
- The Conference Board Consumer Confidence surged to a two-year high in January, arriving at 114.8 in January versus 108.0 prior.
Technical Analysis: Indian Rupee extends the range-bound theme between 82.78 and 83.45
Indian Rupee trades firmer on the day. The USD/INR pair consolidates within a two-month-old descending trend channel of 82.78–83.45. USD/INR remains well-supported above the key 100-period Exponential Moving Average (EMA) on the daily chart. However, the bullish outlook of the pair looks vulnerable as the 14-day Relative Strength Index (RSI) hovers around the 50.0 midlines, suggesting the non-directional movement of the pair.
The first resistance level for the pair will emerge at the upper boundary of the descending trend channel at 83.25. A sustained break above the 83.25 level could pave the way to the next bullish targets all the way up to a high of January 2 at 83.35, en route to a 2023 high of 83.47. On the other hand, a bearish breakout below the confluence of the 100-period EMA and a psychological level at the 83.00–83.05 region would signal the bearish momentum back to a low of December 18 at 82.90, followed by the lower limit of the descending trend channel at 82.72.
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 Swiss Franc.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | 0.33% | 0.11% | -0.29% | 0.34% | -0.29% | -0.16% | -0.67% | |
| EUR | -0.34% | -0.22% | -0.64% | -0.03% | -0.62% | -0.52% | -1.01% | |
| GBP | -0.11% | 0.25% | -0.41% | 0.20% | -0.40% | -0.29% | -0.79% | |
| CAD | 0.28% | 0.65% | 0.40% | 0.60% | 0.01% | 0.11% | -0.41% | |
| AUD | -0.30% | 0.05% | -0.18% | -0.60% | -0.55% | -0.49% | -1.01% | |
| JPY | 0.29% | 0.66% | 0.39% | -0.01% | 0.64% | 0.12% | -0.37% | |
| NZD | 0.19% | 0.51% | 0.29% | -0.10% | 0.50% | -0.09% | -0.53% | |
| CHF | 0.70% | 1.03% | 0.81% | 0.41% | 1.02% | 0.41% | 0.52% |
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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