- Indian Rupee loses momentum on the renewed US Dollar demand.
- Sustained dollar demand from state-run and foreign banks, overseas outflows, and higher crude oil prices might cap the INR’s upside.
- The FOMC Meeting Minutes will be in the spotlight on Tuesday.
Indian Rupee (INR) loses its recovery momentum on Tuesday on the renewed US Dollar (USD) demand. On Monday, the Indian Rupee ended lower, matching its record closing low of 83.34 as a decline in the US Dollar (USD) offset the impact of higher crude oil prices. According to S&P Global Ratings, the Indian economy would be somewhat less influenced by global uncertainties owing to the country's domestic orientation.
Nonetheless, the renewed dollar demand from state-run and foreign banks and foreign funds outflows might exert some selling pressure on the INR in the near term. Market players will monitor the Federal Open Market Committee (FOMC) Meeting Minutes on Tuesday, which might offer hints regarding future policy rate direction and inflation improvement amid the quiet day in terms of economic data releases.
Daily Digest Market Movers: Indian Rupee remains under pressure amid multiple challenges
- India will be a $7-trillion economy by 2030 if the present growth trajectory is maintained, chief economic advisor (CEA) V. Anantha Nageswaran said on Saturday.
- Increasing crude oil prices, foreign funds outflows, and weakness in domestic equities weighed on Indian investor sentiments.
- According to a report in the Reserve Bank of India’s (RBI) monthly bulletin, the momentum of change in India's GDP is estimated to be higher in October-December due to "ebullient" festive demand.
- According to the RBI, the Indian economy is expected to grow at a 6.5% annual pace between 2023 and 2024. The International Monetary Fund (IMF) has estimated growth of 6.3% every year until 2028.
- RBI is anticipated to maintain the policy rate during its upcoming monetary policy meeting scheduled for December 6-8.
- The India’s Consumer Price Index (CPI) climbed by 4.87% YoY in October versus 5.02% prior, above the market consensus of 4.80%.
- The US October leading indicator dropped 0.8% MoM from the previous reading of 0.7% MoM fall, the Conference Board revealed Monday.
- Investors anticipate the US Federal Reserve (Fed) to begin to cut the rates around the middle of 2024.
- According to CME's FedWatch Tool, money market futures have priced in 50% chance of a rate cut of at least 25 basis points (bps) by May 2024.
Technical Analysis: Indian Rupee keeps the negative outlook
The Indian Rupee trades softer on the day. The USD/INR pair has traded within a range of 82.80–83.35 since September. Technically, the USD/INR maintains a bullish bias as the pair holds above the key 100-day Exponential Moving Average (EMA) on the daily chart. This outlook is supported by the 14-day Relative Strength Index (RSI) holding above the 50.0 midline.
The upper boundary of the trading range of 83.35 acts as an immediate resistance level for the pair. Any follow-through buying above 83.35 will pave the way to the year-to-date (YTD) high of 83.47. The next upside target is seen at a psychological round figure at 84.00.
On the flip side, an initial support level for USD/INR is located near the confluence of the lower limit of the trading range and a low of September 12 at 82.80. A decisive break below will see a drop to a low of August 11 at 82.60, en route to a low of August 24 at 82.37.
US Dollar price today
The table below shows the percentage change of US Dollar (USD) against listed major currencies today. US Dollar was the weakest against the Japanese Yen.
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).
What is inflation?
Inflation measures the rise in the price of a representative basket of goods and services. Headline inflation is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core inflation excludes more volatile elements such as food and fuel which can fluctuate because of geopolitical and seasonal factors. Core inflation is the figure economists focus on and is the level targeted by central banks, which are mandated to keep inflation at a manageable level, usually around 2%.
What is the Consumer Price Index (CPI)?
The Consumer Price Index (CPI) measures the change in prices of a basket of goods and services over a period of time. It is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core CPI is the figure targeted by central banks as it excludes volatile food and fuel inputs. When Core CPI rises above 2% it usually results in higher interest rates and vice versa when it falls below 2%. Since higher interest rates are positive for a currency, higher inflation usually results in a stronger currency. The opposite is true when inflation falls.
What is the impact of inflation on foreign exchange?
Although it may seem counter-intuitive, high inflation in a country pushes up the value of its currency and vice versa for lower inflation. This is because the central bank will normally raise interest rates to combat the higher inflation, which attract more global capital inflows from investors looking for a lucrative place to park their money.
How does inflation influence the price of Gold?
Formerly, Gold was the asset investors turned to in times of high inflation because it preserved its value, and whilst investors will often still buy Gold for its safe-haven properties in times of extreme market turmoil, this is not the case most of the time. This is because when inflation is high, central banks will put up interest rates to combat it.
Higher interest rates are negative for Gold because they increase the opportunity-cost of holding Gold vis-a-vis an interest-bearing asset or placing the money in a cash deposit account. On the flipside, lower inflation tends to be positive for Gold as it brings interest rates down, making the bright metal a more viable investment alternative.
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