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  • Indian Rupee gains traction amid the weaker US Dollar.
  • The currency might benefit from inflows since MSCI increased India's weight in its Emerging Market index effective from November 30.
  • Investors await the US Gross Domestic Product Annualized data for the third quarter (Q3), due later on Wednesday. 

Indian Rupee (INR) gathers strength on Wednesday on the foreign banks' Dollar sales and a weaker US Dollar (USD). The Indian economy is projected to expand by over 6% this year, bringing its Gross Domestic Product close to $4 trillion. Additionally, India’s economy is anticipated to be the fastest-growing on the globe in the coming years, according to the International Monetary Fund (IMF).

The Indian Rupee potentially benefits from equities inflows due to MSCI's decision to increase India's weight in its Emerging Market index effective from November 30 and analysts expect equity inflows worth $1.5 billion this week. Nonetheless, the rebound in crude oil prices might cap the INR’s upside. It’s worth noting that India is particularly vulnerable to higher crude prices as the country is the world's third-biggest oil consumer.

Market players will monitor the US Gross Domestic Product Annualized for the third quarter (Q3) on Wednesday, which is expected to expand 5.0%. Later this week, the attention will shift to India’s Gross Domestic Product (GDP) Quarterly for the second quarter (Q2), due on Thursday. Furthermore, the last phase of state elections on Thursday remains in focus as a change in government might result in modifications to current policies, which have an impact on investors.

Daily Digest Market Movers: Indian Rupee remains under pressure amid multiple challenges

  • S&P Global Ratings raised India’s growth forecast for the current financial year to 6.4% from 6.0%, citing robust domestic momentum that has offset headwinds from high food inflation and sluggish exports.
  • Analysts estimate that India's GDP will grow higher than 6.0% next year, making it the fastest-growing major economy.
  • The Reserve Bank of India (RBI) estimated 6.5% growth for July–September, with RBI Governor Shaktikanta Das projecting an upward surprise.
  • US CB Consumer Confidence for November climbed to 102.00 versus a downward revision to 99.1.
  • Richmond Fed Manufacturing Index showed activity slowed in November, falling to -5.0 from 3.0 in October. 
  • The S&P/Case-Shiller Home Price Index grew 3.9% YoY in September versus 2.1% prior, below the market consensus of 4.0%.
  • Federal Reserve (Fed) Governor Christopher Waller said the central bank won’t need to raise rates further and may begin cutting rates if inflation continues to ease over the next three to five months.

Technical Analysis: The Indian Rupee maintains a positive outlook 

The Indian Rupee trades firmer on the day. The USD/INR pair has traded in a familiar range of 82.80–83.40 since September. USD/INR maintains a bullish vibe as the pair holds above the key 100-day Exponential Moving Average (EMA) on the daily chart. The upward momentum is supported by the 14-day Relative Strength Index (RSI) that holds above the 50.0 midline, reflecting that further upside looks favorable.

The upper boundary of the trading range at 83.40 will be the immediate resistance level for the pair. Further north, the next hurdle to watch is the year-to-date (YTD) high of 83.47, en route to a psychological round figure of 84.00. On the downside, the key contention level will emerge at the 83.00 psychological mark. A breach below this level will pave the way to the confluence of the lower limit of the trading range and a low of September 12 at 82.80, followed by a low of August 11 at 82.60.

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 weakest against the New Zealand Dollar.

  USD EUR GBP CAD AUD JPY NZD CHF
USD   -0.80% -1.37% -1.15% -1.24% -0.74% -2.13% -0.78%
EUR 0.77%   -0.59% -0.36% -0.46% 0.05% -1.34% -0.01%
GBP 1.33% 0.55%   0.21% 0.12% 0.60% -0.77% 0.55%
CAD 1.14% 0.36% -0.20%   -0.09% 0.42% -0.97% 0.35%
AUD 1.25% 0.46% -0.11% 0.09%   0.51% -0.85% 0.45%
JPY 0.71% -0.06% -0.64% -0.42% -0.51%   -1.41% -0.07%
NZD 2.13% 1.33% 0.76% 0.96% 0.88% 1.39%   1.31%
CHF 0.79% 0.02% -0.56% -0.35% -0.44% 0.08% -1.33%  

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 Rupee FAQs

What are the key factors driving the Indian Rupee?

The Indian Rupee (INR) is one of the most sensitive currencies to external factors. The price of Crude Oil (the country is highly dependent on imported Oil), the value of the US Dollar – most trade is conducted in USD – and the level of foreign investment, are all influential. Direct intervention by the Reserve Bank of India (RBI) in FX markets to keep the exchange rate stable, as well as the level of interest rates set by the RBI, are further major influencing factors on the Rupee.

How do the decisions of the Reserve Bank of India impact the Indian Rupee?

The Reserve Bank of India (RBI) actively intervenes in forex markets to maintain a stable exchange rate, to help facilitate trade. In addition, the RBI tries to maintain the inflation rate at its 4% target by adjusting interest rates. Higher interest rates usually strengthen the Rupee. This is due to the role of the ‘carry trade’ in which investors borrow in countries with lower interest rates so as to place their money in countries’ offering relatively higher interest rates and profit from the difference.

What macroeconomic factors influence the value of the Indian Rupee?

Macroeconomic factors that influence the value of the Rupee include inflation, interest rates, the economic growth rate (GDP), the balance of trade, and inflows from foreign investment. A higher growth rate can lead to more overseas investment, pushing up demand for the Rupee. A less negative balance of trade will eventually lead to a stronger Rupee. Higher interest rates, especially real rates (interest rates less inflation) are also positive for the Rupee. A risk-on environment can lead to greater inflows of Foreign Direct and Indirect Investment (FDI and FII), which also benefit the Rupee.

How does inflation impact the Indian Rupee?

Higher inflation, particularly, if it is comparatively higher than India’s peers, is generally negative for the currency as it reflects devaluation through oversupply. Inflation also increases the cost of exports, leading to more Rupees being sold to purchase foreign imports, which is Rupee-negative. At the same time, higher inflation usually leads to the Reserve Bank of India (RBI) raising interest rates and this can be positive for the Rupee, due to increased demand from international investors. The opposite effect is true of lower inflation.

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