USD/INR gathers strength, focus on US PMI data

Lallalit Srijandorn FXStreet

Indian Rupee loses ground despite the modest decline of the US dollar Index.
RBI’s Das said cutting the key policy rate would be premature until the 4% inflation target is achieved on a sustained basis.
The US Purchasing Managers' Index (PMI) report will be due on Wednesday.

Indian Rupee (INR) trades on a softer note on Tuesday. The Reserve Bank of India (RBI) Governor Shaktikanta Das stated last week that cutting the key policy rate would be premature until the 4% inflation target is achieved on a durable basis. RBI’s Das said Indian Consumer Price Index (CPI) inflation has decreased from a peak of 7.8% during the Ukraine-Russia conflict to within the RBI's target range of 2–6%. However, new geopolitical flashpoints are emerging, and climate change and weather-related events are also affecting food prices.

Investors will focus on the US Purchasing Managers' Index (PMI) report on Wednesday. The preliminary US S&P Global Services PMI for January is expected to ease from 51.4 to 51.0, while the Manufacturing PMI is estimated to remain steady at 47.9. The attention will shift to the Q4 US Gross Domestic Product Annualized on Thursday and the December Core Personal Consumption Expenditures Price Index (Core PCE) on Friday. Indian markets will be closed on Friday for Republic Day.

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

According to the Reserve Bank of India (RBI), India's foreign currency reserves climbed by USD 1.634 billion to USD 618.937 billion in the week ending January 12.
India’s Foreign Direct Investment (FDI) has surged in the last few years, increasing from $36 billion in 2014 to $70.9 billion in 2023.
The markets have priced in 42% odds for a rate cut at the March meeting, a slide from 70% just a week ago, according to the CME FedWatch Tool.
San Francisco Fed President Mary Daly said the central bank has a lot of work left to do on bringing inflation back down to the 2% target, and it’s premature to think interest-rate cuts are around the corner.
The monthly and annual Core Personal Consumption Expenditures Price Index (Core PCE), the Fed's favorite inflation gauge, are projected to show an increase of 0.2% MoM and 3% YoY, respectively.

Technical Analysis: Indian Rupee remains range-bound between 82.80 and 83.40

Indian Rupee trades weaker on the day. The USD/INR pair remains stuck within a multi-month trading range of 82.80–83.40. USD/INR holds above the key 100-period Exponential Moving Average (EMA) on the daily chart. However, the bullish outlook of USD/INR looks vulnerable as the 14-day Relative Strength Index (RSI) stands below the 50.0 midline, indicating that additional decline cannot be ruled out.

The upper boundary of the trading range at 83.40 acts as a critical resistance level for USD/INR. The additional upside filter to watch is a 2023 high of 83.47, and finally the 84.00 round figure. On the other hand, an initial support level is seen at the 83.00 psychological mark. Any follow-through selling below 83.00 will expose 82.80 (the lower limit of the trading range and a low of January 15) and 82.60 (low of August 11).

US Dollar price today

The table below shows the percentage change of US Dollar (USD) against listed major currencies today. US Dollar was the strongest against the Canadian Dollar.

	USD	EUR	GBP	CAD	AUD	JPY	NZD	CHF
USD		-0.34%	-0.32%	-0.20%	-0.58%	-0.66%	-0.67%	-0.44%
EUR	0.34%		0.02%	0.14%	-0.24%	-0.33%	-0.33%	-0.10%
GBP	0.32%	-0.02%		0.11%	-0.27%	-0.35%	-0.36%	-0.13%
CAD	0.20%	-0.13%	-0.11%		-0.37%	-0.47%	-0.47%	-0.24%
AUD	0.58%	0.22%	0.24%	0.36%		-0.13%	-0.09%	0.14%
JPY	0.67%	0.32%	0.36%	0.48%	0.10%		0.04%	0.27%
NZD	0.67%	0.33%	0.36%	0.47%	0.09%	0.01%		0.23%
CHF	0.44%	0.11%	0.13%	0.25%	-0.13%	-0.21%	-0.22%

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.

Author

Lallalit Srijandorn

FXStreet

Lallalit Srijandorn is a Parisian at heart. She has lived in France since 2019 and now becomes a digital entrepreneur based in Paris and Bangkok.

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