- Indian Rupee trades on a stronger note amid the decline of USD.
- The pace of Indian GDP growth was the strongest among major economies last quarter.
- The US ISM Manufacturing PMI Index will be the highlight on Friday.
Indian Rupee (INR) recovers some lost ground on Friday. However, the US Dollar (USD) demand from foreign and state-run banks might cap an uptick of the pair. The pace of GDP growth in the Indian economy was the strongest among major economies last quarter. Prime Minister Narendra Modi's administration has been swiftly attracting multinational corporations to establish factories in the country while spending billions of dollars to improve highways, ports, airports, and trains.
The International Monetary Fund (IMF) forecast India's GDP will grow by 6.5% in 2024. Nonetheless, the rebound in oil prices and elevated domestic inflation might cap the upside of the USD/INR pair.
Investors will focus on the US ISM Manufacturing PMI Index, due on Friday. Also, Fed’s Williams, Logan, Waller, Bostic, Daly, and Kluger are set to speak later in the day. The stronger-than-expected US PMI data might trigger speculation about the delay of interest rate cuts, which will provide some support to the Greenback and USD/INR.
Daily Digest Market Movers: Indian Rupee remains strong amid the uncertainties
- India’s S&P Global Manufacturing PMI improved to 56.9 in February from 56.5 in January.
- The Indian economy grew by 8.4% during the October-December quarter of FY24, better than the estimation of 7.3%, according to the Statistics Ministry.
- India’s GDP Annual growth rate expanded by 7.6% from 7.2%.
- The US Personal Consumption Expenditure (PCE) Price Index eased from 2.6% to 2.4% YoY, in line with market expectations.
- The Core PCE, the Fed preferred inflation gauge, rose by 2.8% YoY in January compared to December’s reading of. 2.9%, matching the consensus.
- Atlanta Fed President Raphael Bostic said that the recent inflation data indicates the road back to the central bank’s 2% inflation target will be “bumpy.”, while Chicago Fed President Austan Goolsbee, stated that he expects the first rate cuts later this year, but he cannot specify the timeline.
- Investors have already fully priced out a Fed rate cut in March but priced in 50% odds of a rate cut in the June meeting.
Technical Analysis: Indian Rupee remains capped in the longer-term range-bound theme
Indian Rupee trades strongly on the day. USD/INR remains confined within a multi-month-old descending trend channel between 82.70 and 83.20 since December 8, 2023.
In the short term, USD/INR keeps the negative bias unchanged as the pair is still below the 100-day Exponential Moving Average on the daily timeframe. Furthermore, the 14-day Relative Strength Index (RSI) holds in the negative zone below the 50.0 midline, supporting the sellers for the time being.
The initial support level for the pair is seen at the lower limit of the descending trend channel at 82.70. A breach of this level might convince USD bears to extend the pair’s downtrend near a low of August 23 at 82.45, followed by a low of June 1 at 82.25.
In the case of a bullish trading environment, the critical upside barrier will emerge at the 83.00 mark, portraying the confluence of the 100-day EMA and a psychological round figure. Further north, the next hurdle to watch is a high of January 2 at 83.35, and finally at 84.00.
US Dollar price in the last 7 days
The table below shows the percentage change of US Dollar (USD) against listed major currencies in the last 7 days. US Dollar was the strongest against the New Zealand Dollar.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | 0.12% | 0.28% | 0.66% | 0.72% | -0.03% | 1.66% | 0.53% | |
| EUR | -0.11% | 0.16% | 0.54% | 0.61% | -0.15% | 1.53% | 0.41% | |
| GBP | -0.28% | -0.16% | 0.38% | 0.45% | -0.31% | 1.38% | 0.24% | |
| CAD | -0.66% | -0.54% | -0.39% | 0.07% | -0.68% | 1.00% | -0.15% | |
| AUD | -0.73% | -0.61% | -0.45% | -0.07% | -0.76% | 0.94% | -0.23% | |
| JPY | 0.03% | 0.18% | 0.32% | 0.70% | 0.77% | 1.69% | 0.54% | |
| NZD | -1.71% | -1.56% | -1.40% | -1.01% | -0.95% | -1.71% | -1.17% | |
| CHF | -0.51% | -0.40% | -0.24% | 0.14% | 0.22% | -0.55% | 1.15% |
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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