USD/INR gains ground following RBI rate decision, eyes on US NFP data
- Indian Rupee edges lower amid the cautious mood.
- The Reserve Bank of India (RBI) left rates unchanged at its meeting on Friday.
- RBI keeps repo rate at 6.5%, says though core inflation has eased, risk of rising food prices remains.
Indian Rupee (INR) traded on a softer note on Friday as investors turned cautious. Nonetheless, the decline in crude oil prices and foreign inflows might limit the INR’s downside. Following the meeting, the Reserve Bank of India (RBI) Monetary Policy Committee (MPC) decided to maintain the status quo on Friday, keeping the repo rate unchanged at 6.5%.
RBI Governor Shaktikanta Das said that headline inflation has receded from last year's highs but remains above target in many countries. He further stated that the central bank remains highly alert and prepared to take appropriate action as warranted to anchor inflation expectations.
Investors will shift their attention to the US employment data, including Nonfarm Payrolls (NFP) and the Unemployment Rate. Meanwhile, US Dollar demand and risk aversion in global markets might lift the USD/INR pair in the near term.
Daily Digest Market Movers: Indian Rupee weakens amid the multiple headwinds
- RBI governor Shaktikanta Das announced that five out of six members of the Monetary Policy Committee (MPC) have voted to remain focused on the withdrawal of accommodation.
- RBI’s Das said there had been broad-based easing in core inflation, which is indicative of successful disinflation through monetary policy actions.
- He said that the near-term outlook is clouded by risks to food inflation, which might lead to a rise in inflation in November and possibly December. This should be monitored for potential second-round effects.
- Das said high-frequency food price indicators suggest rising prices for key vegetables, which could trigger higher food inflation. He also cited rising global sugar prices as a major source of worry, while adding that local milk prices had steadied.
- He added that the Indian economy is resilient and has momentum
- Indian CPI inflation is projected at 5.4% for FY24.
- The projected growth rate for India's GDP in FY24 is currently set at 7%, with forecasts for the third and fourth quarters of 6.5% and 6%, respectively.
- Indian government bonds maintained a lateral trajectory, with rates within a narrow range following the RBI's final monetary policy decision for 2023, which resulted in no surprise changes.
- The Sensex and Nifty 50 Indian benchmark indexes began the trading sessions with moderate gains. The Nifty 50 opened over 20,900, while the Sensex was close to 69,700.
- According to S&P Global Ratings' latest report, India is set to be the world's third-biggest economy by 2030.
- India maintained its position as the world's fastest-growing major economy, surpassing forecasts with a GDP increase of 7.6% in the September quarter.
- RBI has kept the benchmark policy rate unchanged over the last four monetary meetings. The last adjustment occurred in February 2023, with a 6.5% rate rise.
- US Initial Jobless Claims rose 220K in the week ending December 2 versus 218K prior. Continuing Claims eased to 1.861M from the previous week of 1.925M.
Technical Analysis: Indian Rupee’s outlook remains constructive
Indian Rupee trades softer on the day. The USD/INR pair has remained confined in a trading range of 82.80–83.40 since September. Technically, USD/INR holds above the key 100-day Exponential Moving Average (EMA) with an upward slope on the daily chart, indicating the bullish outlook remains intact. The upward momentum is bolstered by the 14-day Relative Strength Index (RSI), which remains above the 50.0 midpoint.
The immediate resistance level will emerge at the upper boundary of the trading range of 83.40. Further north, the next hurdle is seen at the year-to-date (YTD) high of 83.47, en route to a round figure of 84.00.
On the flip side, the key contention level is at the 83.00 psychological round figure. A breach of this level will lead to the confluence of the lower limit of the trading range and a low of September 12 at 82.80. Further south, the next downside target to watch is a low of August 11 at 82.60.
(This story was corrected on December 8 at 09:27 GMT to say that the RBI had made a decision to keeps its policy rate unchanged. In the original the bullet points said the meeting was an up-and-coming event.)
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 Japanese Yen.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | 0.99% | 0.35% | 0.15% | -0.14% | -2.83% | -0.08% | 0.06% | |
| EUR | -1.00% | -0.65% | -0.85% | -1.14% | -3.87% | -1.12% | -0.93% | |
| GBP | -0.35% | 0.65% | -0.20% | -0.49% | -3.19% | -0.47% | -0.28% | |
| CAD | -0.16% | 0.84% | 0.20% | -0.29% | -2.99% | -0.26% | -0.08% | |
| AUD | 0.14% | 1.12% | 0.49% | 0.30% | -2.69% | 0.02% | 0.21% | |
| JPY | 2.75% | 3.73% | 3.10% | 2.90% | 2.64% | 2.65% | 2.82% | |
| NZD | 0.11% | 1.10% | 0.46% | 0.27% | -0.03% | -2.71% | 0.20% | |
| CHF | -0.08% | 0.91% | 0.28% | 0.08% | -0.21% | -2.91% | -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).
Interest rates FAQs
What are interest rates?
Interest rates are charged by financial institutions on loans to borrowers and are paid as interest to savers and depositors. They are influenced by base lending rates, which are set by central banks in response to changes in the economy. Central banks normally have a mandate to ensure price stability, which in most cases means targeting a core inflation rate of around 2%.
If inflation falls below target the central bank may cut base lending rates, with a view to stimulating lending and boosting the economy. If inflation rises substantially above 2% it normally results in the central bank raising base lending rates in an attempt to lower inflation.
How do interest rates impact currencies?
Higher interest rates generally help strengthen a country’s currency as they make it a more attractive place for global investors to park their money.
How do interest rates influence the price of Gold?
Higher interest rates overall weigh on the price of Gold because they increase the opportunity cost of holding Gold instead of investing in an interest-bearing asset or placing cash in the bank.
If interest rates are high that usually pushes up the price of the US Dollar (USD), and since Gold is priced in Dollars, this has the effect of lowering the price of Gold.
What is the Fed Funds rate?
The Fed funds rate is the overnight rate at which US banks lend to each other. It is the oft-quoted headline rate set by the Federal Reserve at its FOMC meetings. It is set as a range, for example 4.75%-5.00%, though the upper limit (in that case 5.00%) is the quoted figure.
Market expectations for future Fed funds rate are tracked by the CME FedWatch tool, which shapes how many financial markets behave in anticipation of future Federal Reserve monetary policy decisions.
Author
Lallalit Srijandorn
FXStreet
Lallalit Srijandorn is a Parisian at heart. She has lived in France since 2019 and now becomes a digital entrepreneur based in Paris and Bangkok.
