USD/INR gains momentum ahead of US GDP data

Indian Rupee drifts lower amid the modest rebound of the USD.
The Reserve Bank of India’s (RBI) monthly bulletin emphasized a strong warning on inflation.
Market players will focus on the US GDP for Q3, due later on Thursday.

Indian Rupee (INR) trades on the weaker side on Thursday. The Reserve Bank of India’s (RBI) monthly bulletin emphasized that if headline retail inflation is not brought down to the medium-term target of 4% and tethered there, it could underscore the potential impact on growth.

Indian headline retail inflation rate rose 5.55% in November, worse than the market expectation. According to the RBI's latest estimations, Consumer Price Index (CPI) inflation is seen averaging 4% in July-September 2024. RBI governor Shaktikanta Das stated that reaching 4% should not just be a one-off event, the MPC should have confidence that 4% has become durable.

Investors will monitor the US Gross Domestic Product Annualized (Q3), due later on Thursday. The growth number is projected to remain steady at 5.2%. The attention will shift to November’s Core Personal Consumption Expenditures Price Index (PCE) on Friday, which is estimated to grow 0.2% MoM and 3.3% YoY, respectively.

Daily Digest Market Movers: Indian Rupee stays vulnerable amid the elevated inflation and uncertainties

India’s foreign exchange reserves stood at $606.9 billion on December 8, 2023, the fourth highest among major foreign exchange reserve-holding countries, having increased by
$28.4 billion during 2023–24.
India's total outstanding bonds traded in the market surged to $2.47 trillion in the September quarter from $2.34 trillion in the March quarter.
According to the RBI's monthly Bulletin, the RBI sold $310 million in the spot foreign currency market in October.
The International Monetary Fund (IMF) has reclassified India's exchange rate regime from floating to a stabilized arrangement.
Consumer confidence in the United States increased by the most since early 2021, rising to 110.7 in December from 101.0 the previous month (revised down from 102.0).
The annual rate of Existing Home Sales jumped to 3.82 million in November, above the market consensus of 3.77 million.
The market expects the Fed to hold its benchmark rate steady at its January meeting but could begin cutting it as soon as March, according to the CME FedWatch Tool.

Technical Analysis: Indian Rupee to remain range-bound between 82.80 and 83.40

Indian Rupee trades weaker on the day. The USD/INR pair has remained stuck within the 82.80–83.40 range since September. Technically, USD/INR holds above the key 100-day Exponential Moving Average (EMA) on the daily chart. However, further challenges to the key EMA cannot be ruled out as the 14-day Relative Strength Index (RSI) lies below the 50.0 midpoint.

The upper boundary of the trading range at 83.40 acts as an immediate resistance level for USD/INR. A decisive break above 83.40 will see the next hurdle at the year-to-date (YTD) high of 83.47, en route to the psychological round figure of 84.00.

On the downside, the key contention level will emerge at the 83.00 psychological mark. Further south, the next downside stop to watch is the confluence of the lower limit of the trading range and a low of September 12 at 82.80. A breach of this level will see a drop to 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		-0.01%	0.02%	-0.03%	-0.08%	-0.36%	0.09%	-0.08%
EUR	0.01%		0.03%	0.00%	-0.06%	-0.32%	0.11%	-0.07%
GBP	-0.02%	-0.06%		-0.04%	-0.14%	-0.38%	0.06%	-0.10%
CAD	0.03%	0.01%	0.05%		-0.05%	-0.33%	0.10%	-0.06%
AUD	0.08%	0.06%	0.10%	0.05%		-0.26%	0.17%	-0.01%
JPY	0.36%	0.33%	0.40%	0.32%	0.28%		0.47%	0.28%
NZD	-0.08%	-0.11%	-0.07%	-0.11%	-0.17%	-0.43%		-0.18%
CHF	0.09%	0.06%	0.10%	0.05%	-0.02%	-0.28%	0.16%

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).

RBI FAQs

What is the role of the Reserve Bank of India?

The role of the Reserve Bank of India (RBI), in its own words, is "..to maintain price stability while keeping in mind the objective of growth.” This involves maintaining the inflation rate at a stable 4% level primarily using the tool of interest rates. The RBI also maintains the exchange rate at a level that will not cause excess volatility and problems for exporters and importers, since India’s economy is heavily reliant on foreign trade, especially Oil.

How do the decisions of the Reserve Bank of India affect the Rupee?

The RBI formally meets at six bi-monthly meetings a year to discuss its monetary policy and, if necessary, adjust interest rates. When inflation is too high (above its 4% target), the RBI will normally raise interest rates to deter borrowing and spending, which can support the Rupee (INR). If inflation falls too far below target, the RBI might cut rates to encourage more lending, which can be negative for INR.

Does the Reserve Bank of India directly intervene in FX markets?

Due to the importance of trade to the economy, the Reserve Bank of India (RBI) actively intervenes in FX markets to maintain the exchange rate within a limited range. It does this to ensure Indian importers and exporters are not exposed to unnecessary currency risk during periods of FX volatility. The RBI buys and sells Rupees in the spot market at key levels, and uses derivatives to hedge its positions.

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