• Indian Rupee struggles to gain ground on Thursday amid renewed USD demand and downbeat Indian WPI inflation data.
  • India’s Wholesale Price Index (WPI) inflation came in weaker than expected, dropping 0.20% YoY in February.
  • Traders will closely monitor US Retail Sales on Thursday.

Indian Rupee (INR) trades on a negative note on Thursday on the stronger US Dollar (USD) and higher US Treasury bond yields. Additionally, the downside of the INR is supported by the softer Indian inflation data for February. India's Wholesale Price Index-based inflation dropped to a four-month low, easing to 0.20% YoY in February from 0.27% in January, weaker than the market estimation of 0.25%.

Meanwhile, the downside of USD/INR is likely to be limited in the near term amid the foreign outflows, and the hotter-than-expected US CPI report for February suggested that the Federal Reserve (Fed) will wait longer to cut interest rates. The rebound in oil prices also weighs on the INR as India ranks third in the world for oil consumption. Market players await US Retail Sales on Thursday. Also, the Producer Price Index (PPI), Business Inventories, and usual weekly Initial Jobless Claims will be due later in the day.

Daily Digest Market Movers: Indian Rupee remains sensitive to global factors  

  • The report stated that the positive rate of inflation in February is primarily due to an increase in prices of food articles, crude petroleum and natural gas, electricity, machinery and equipment, and motor vehicles, trailers and semi-trailers, etc. 
  • The Indian WPI Food rose 6.95% YoY in February from the previous reading of 6.85%, while the WPI Fuel fell by 1.59% YoY from a 0.51% drop in January. 
  • The Indian WPI Manufacturing Inflation for February arrived at -1.27% YoY versus -1.13% prior. 
  • Morgan Stanley forecast that India’s current expansion resembles the booming 2003–2007 period, when GDP growth averaged 8.6%, as investment has become a major driver of India’s economy. 
  • The Indian economy was estimated to grow at 7.6%, according to the central government’s second advance estimate for FY 2024. 
  • The Indian Chief Economic Advisor (CEA), V Anantha Nageswaran, has projected that the Indian economy will expand at a faster pace than the government's estimates due to the increase in the activities of the industry and service sectors of the country.
  • India's Retail inflation dropped to 5.09% YoY in February from the previous reading of 5.10%, above the consensus of 5.02%, according to the Ministry of Statistics & Programme Implementation.
  • The stronger-than-expected US CPI data report might keep the Fed on course to wait at least until the summer before starting to lower interest rates.
  • Financial markets have priced in a 75% odds of a 25 basis points (bps) rate cut in June, down from 95% at the beginning of the week, according to the CME FedWatch Tools. 

Most recent article: Sensex sees a negative start to Wednesday as caution prevails

Technical Analysis: Indian Rupee continues to trade in a longer trading range of 82.60–83.15

Indian Rupee trades weaker on the day. USD/INR remains confined within a multi-month-old descending trend channel around 82.60–83.15 since December 8, 2023. 

Technically, USD/INR maintains the bearish outlook unchanged in the near term as the pair is below the 100-day Exponential Moving Average (EMA) on the daily chart. It’s worth noting that the 14-day Relative Strength Index (RSI) lies below the 50.0 midlines, suggesting the path of least resistance is to the downside. 

Any follow-through buying above the confluence of the 100-day EMA and a psychological round mark of 83.00 might convince the bulls to charge again, possibly taking the pair to the upper boundary of the descending trend channel near 83.15. A break above this level will pave the way to the next upside target near a high of January 2 at 83.35, en route to the 84.00 round figure.

On the downside, the key support level for USD/INR is seen near the lower limit of the descending trend channel at 82.60. A breach of the mentioned level will see a drop to a low of August 23 at 82.45, followed by a low of June 1 at 82.25.

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   0.01% 0.48% -0.04% 0.18% 0.78% 0.32% 0.20%
EUR -0.01%   0.47% -0.06% 0.14% 0.77% 0.31% 0.20%
GBP -0.48% -0.47%   -0.53% -0.30% 0.30% -0.16% -0.26%
CAD 0.05% 0.05% 0.52%   0.22% 0.80% 0.36% 0.24%
AUD -0.18% -0.17% 0.29% -0.23%   0.60% 0.17% 0.06%
JPY -0.76% -0.76% -0.04% -0.83% -0.61%   -0.45% -0.56%
NZD -0.32% -0.31% 0.16% -0.36% -0.17% 0.46%   -0.10%
CHF -0.22% -0.20% 0.27% -0.25% -0.06% 0.54% 0.10%  

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).

Inflation FAQs

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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