- Indian Rupee edges lower amid the renewed USD demand.
- Risk-averse sentiment and the possible intervention from the Indian central bank might limit the upside of INR.
- Market players await the Indian WPI inflation and US Retail Sales for February, due on Thursday.
Indian Rupee (INR) trades on a negative note on Wednesday. The upbeat Indian Retail Inflation data for February provided some support to the local currency and drags the USD/INR pair lower on Tuesday. However, the renewed US Dollar (USD) demand from importers, risk-averse sentiment, and the potential intervention from the Reserve Bank of India (RBI) might cap the upside of the Indian Rupee.
Looking ahead, investors will monitor India’s Wholesale Price Index (WPI) of Food, Fuel, and Inflation on Thursday. On the US docket, US Retail Sales will be in the spotlight later on Thursday. The Retail Sales figure is estimated to improve to 0.8% MoM in February from a 0.8% drop in January.
Daily Digest Market Movers: Indian Rupee remains sensitive amid multiple headwinds
- India's Retail inflation eased to 5.09% YoY in February from 5.10% in the previous month, better than the market expectation of 5.02%, according to the Ministry of Statistics & Programme Implementation.
- The Indian food inflation for February came in at 8.66% versus 8.30% prior. Meanwhile, the rural inflation rate remained steady at 5.34%, while the urban inflation rate declined to 4.78% from 4.92% in January.
- India's Industrial Production dropped to 3.8% YoY in January from the previous reading of 4.2%, stronger than estimated.
- The US headline Consumer Price Index (CPI) came in line with expectations, rising 0.4% MoM in February. The annual CPI figure was above the market consensus, increasing 3.2% YoY in February.
- The Core CPI, excluding volatile food and energy prices, climbed 0.4% MoM and 3.8% YoY, above the market consensus.
- The upbeat inflation data might convince the Fed to focus on more data and allow policymakers to avoid having to rush to cut rates.
Most recent article: Sensex opens higher on Wednesday despite mixed global cues
Technical Analysis: Indian Rupee remains capped within longer term trading range
Indian Rupee trades softer on the day. USD/INR has stayed within a multi-month-old descending trend channel around 82.60–83.15 since December 8, 2023.
The bearish outlook of USD/INR remains intact in the near term as the pair is below the 100-day Exponential Moving Average (EMA) on the daily timeframe. Furthermore, the downward momentum is supported by the 14-day Relative Strength Index (RSI), which lies below the 50.0 midlines, indicating the downtrend is more likely to resume than to reverse.
The lower limit of the descending trend channel at 82.60 acts as a potential support level for the pair. A breach of this level could sustain a bearish drop to a low of August 23 at 82.45, followed by a low of June 1 at 82.25.
On the upside, a decisive break above the confluence of the 100-day EMA and a psychological round mark of 83.00 could make its way back up to the upper boundary of the descending trend channel at 83.15. A bullish breakout above 83.15 will expose a high of January 2 at 83.35, en route to the 84.00 round figure.
US Dollar price this week
The table below shows the percentage change of US Dollar (USD) against listed major currencies this week. US Dollar was the strongest against the Japanese Yen.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | 0.12% | 0.48% | 0.04% | 0.10% | 0.53% | 0.16% | 0.02% | |
| EUR | -0.13% | 0.36% | -0.10% | -0.02% | 0.40% | 0.03% | -0.11% | |
| GBP | -0.48% | -0.36% | -0.45% | -0.38% | 0.05% | -0.32% | -0.48% | |
| CAD | -0.03% | 0.08% | 0.43% | 0.06% | 0.47% | 0.12% | -0.03% | |
| AUD | -0.11% | 0.02% | 0.36% | -0.08% | 0.43% | 0.06% | -0.10% | |
| JPY | -0.52% | -0.40% | 0.19% | -0.50% | -0.41% | -0.39% | -0.52% | |
| NZD | -0.16% | -0.03% | 0.32% | -0.13% | -0.05% | 0.38% | -0.14% | |
| CHF | -0.02% | 0.11% | 0.46% | 0.03% | 0.09% | 0.50% | 0.14% |
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 economy FAQs
How does the Indian economy impact the Indian Rupee?
The Indian economy has averaged a growth rate of 6.13% between 2006 and 2023, which makes it one of the fastest growing in the world. India’s high growth has attracted a lot of foreign investment. This includes Foreign Direct Investment (FDI) into physical projects and Foreign Indirect Investment (FII) by foreign funds into Indian financial markets. The greater the level of investment, the higher the demand for the Rupee (INR). Fluctuations in Dollar-demand from Indian importers also impact INR.
What is the impact of Oil prices on the Rupee?
India has to import a great deal of its Oil and gasoline so the price of Oil can have a direct impact on the Rupee. Oil is mostly traded in US Dollars (USD) on international markets so if the price of Oil rises, aggregate demand for USD increases and Indian importers have to sell more Rupees to meet that demand, which is depreciative for the Rupee.
How does inflation in India impact the Rupee?
Inflation has a complex effect on the Rupee. Ultimately it indicates an increase in money supply which reduces the Rupee’s overall value. Yet if it rises above the Reserve Bank of India’s (RBI) 4% target, the RBI will raise interest rates to bring it down by reducing credit. Higher interest rates, especially real rates (the difference between interest rates and inflation) strengthen the Rupee. They make India a more profitable place for international investors to park their money. A fall in inflation can be supportive of the Rupee. At the same time lower interest rates can have a depreciatory effect on the Rupee.
How does seasonal US Dollar demand from importers and banks impact the Rupee?
India has run a trade deficit for most of its recent history, indicating its imports outweigh its exports. Since the majority of international trade takes place in US Dollars, there are times – due to seasonal demand or order glut – where the high volume of imports leads to significant US Dollar- demand. During these periods the Rupee can weaken as it is heavily sold to meet the demand for Dollars. When markets experience increased volatility, the demand for US Dollars can also shoot up with a similarly negative effect on the Rupee.
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