- The Indian Rupee loses momentum in Monday’s Asian session.
- India’s Wholesale Price Index (WPI) Inflation rose to 3.36% YoY in June from 2.61% in May, weaker than the 3.50% expected.
- Possible Fed rate cuts, lower US bond yields might support the local currency; firmer USD could weigh on the INR.
- Traders await the NY Empire State Manufacturing Index for July and the Fed’s Daly speech, which is due on Monday.
The Indian Rupee (INR) trades on a softer note on Monday amid the recovery of the US Dollar (USD). The latest data showed that India's Wholesale Price Index (WPI)-based inflation surge rose to 3.36% YoY in June from 2.61 in the previous reading. This figure came in below, the market consists of 3.50%, according to the latest official data released on Monday. The INR edges lower in response to the cooler US inflation.
The rising hopes of rate cuts by the Federal Reserve (Fed), lower US bond yields, and persistent India’s foreign inflows might lift the INR. Nonetheless, the extended gains in crude oil prices and the renewed Greenback demand from state-run banks and local importers limit the INR’s potential gains. The downside of the local currency might be limited amid the Reserve Bank of India’s (RBI) routine interventions, which might support the INR from depreciating to near multi-month lows. Looking ahead, investors will keep an eye on the NY Empire State Manufacturing Index for July, which will be published, while Fed’s Mary Daly is due to speak.
Daily Digest Market Movers: Indian Rupee loses traction on the stronger US Dollar
- “The annual rate of inflation based on all India Wholesale Price Index (WPI) number is 3.36% (Provisional) for the month of June, 2024 (over June, 2023). Positive rate of inflation in June, 2024 is primarily due to increase in prices of food articles, manufacture of food products, crude petroleum & natural gas, mineral oils, other manufacturing etc,” the Ministry of Commerce and Industry said in a statement.
- Indian WPI Food came in at 10.87% YoY in June, compared to 9.82% in May. Meanwhile, the WPI Fuel arrived at 1.03% versus 1.35% earlier.
- Indian Consumer Price Index (CPI) rose to the highest in four months at 5.08% YoY in June on the back of higher food prices, according to official data released on Friday. This figure was above the market consensus and the previous reading of 4.80%.
- India’s Industrial Production increased 5.9% YoY in May as against 5.0% in April, beating the estimation of 4.9%.
- The US Producer Price Index (PPI) rose to 2.6% YoY in June from a revised up in the previous reading of 2.4%, above the consensus of 2.3%. The core PPI climbed 3.0% YoY, surpassing the expected 2.5%. On a monthly basis, the PPI rose 0.2% MoM in June, above the market consensus of 0.1%.
- The University of Michigan's Consumer Sentiment Index survey dropped to 66.0 in July from 68.2 in June, the lowest in seven months, falling short of the expected increase to 68.5. The UoM 5-year Consumer Inflation Expectations declined slightly in July to 2.9% from the previous reading of 3.0%.
- Financial markets are now pricing in above 90% odds for a 25 basis points (bps) cut in September, according to the CME Fedwatch Tool.
Technical analysis: USD/INR remains in consolidative mode in the near term
The Indian Rupee trades with a bearish bias on the day. The USD/INR pair stays bullish on the daily chart as it holds above the key 100-day Exponential Moving Average (EMA).
Nonetheless, in the shorter term, the pair has remained within its month-long range since March 21. The 14-day Relative Strength Index (RSI) hovers around the 50-midline, suggesting that further consolidation cannot be ruled out.
A decisive break above the upper boundary of the trading range at 83.65 might pave the way to the all-time high of 83.75. Further north, the next upside barrier will emerge at the 84.00 psychological level.
On the flip side, a breach of the 100-day EMA at 83.37 might drag the pair lower to the 83.00 round figure. Sustained trading below this level will expose 82.82, a low of January 12.
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 | -0.02% | -0.01% | 0.09% | 0.02% | -0.12% | 0.11% | -0.19% | |
| EUR | 0.02% | 0.02% | 0.12% | 0.05% | -0.11% | 0.13% | -0.20% | |
| GBP | -0.01% | -0.01% | 0.09% | 0.02% | -0.11% | 0.08% | -0.21% | |
| CAD | -0.11% | -0.12% | -0.12% | -0.10% | -0.21% | -0.02% | -0.30% | |
| AUD | -0.02% | -0.05% | -0.01% | 0.07% | -0.14% | 0.08% | -0.23% | |
| JPY | 0.13% | 0.12% | 0.13% | 0.24% | 0.13% | 0.18% | -0.08% | |
| NZD | -0.08% | -0.13% | -0.10% | -0.01% | -0.09% | -0.20% | -0.30% | |
| CHF | 0.19% | 0.18% | 0.18% | 0.29% | 0.23% | 0.07% | 0.27% |
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
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.
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.
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.
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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