USD/INR loses momentum ahead of Indian Trade Balance, US PMI data

Indian Rupee edges higher amid the softer US Dollar.
India's Wholesale Price Index (WPI) inflation emerged from the deflationary zone, rising to 0.26% in November.
Investors await the Indian Trade Balance and the US S&P Global PMI report for fresh impetus.

Indian Rupee (INR) trades on the stronger note on Friday amid the USD weakness. The Wholesale Price Index, which measures India's wholesale inflation, has entered positive territory for the first time since March 2023, according to data from the commerce ministry on Thursday. Inflationary pressures have been attributed to price rises in a variety of industries.

The Reserve Bank of India (RBI) Governor Shaktikanta Das said that the inflation figures may show an uptick in November and December due to food output pressures. Governor Das added that, taking into account these factors and the assumption of typical monsoons, CPI-based inflation is estimated at 5.4% for 2023–24, with Q3 at 5.6% and Q4 at 5.2%.

Market players will monitor the Indian Trade Balance and the US S&P Global Purchasing Managers' Index (PMI), due later on Friday. The Manufacturing PMI is estimated to ease from 49.4 to 49.3, while the Services PMI is projected to drop from 50.8 to 50.6.

Daily Digest Market Movers: Indian Rupee remains sensitive as inflation hits eight-month high

India’s WPI Inflation rose by 0.26% YoY in November from a previous reading of 0.52%, above the forecast of 0.08%.
India’s Wholesale Price Food Index came in at 4.69% YoY in November whereas the WPI Fuel Price Index arrived at -4.61% YoY in the same period.
India’s WPI Manufacturing Inflation for November declined by 0.64% YoY from a 1.13% fall in October.
India's Consumer Price Index (CPI) climbed 5.55% YoY in November versus 4.87 %prior, worse than the expectation of 5.70%.
The Asian Development Bank (ADB) forecasted India’s economy to expand 6.7% in Financial Year 2023–24, revised up from 6.3% in September.
US Retail Sales came in better than the market expectation, growing 0.3% in November from a 0.2% decline in the previous reading.
The US weekly Initial Jobless Claims arrived at 202K versus 221K prior. Continuing Claims rose by 20K to 1.876M.
The Federal Reserve (Fed) maintained interest rates unchanged at the target range of 5.25%–5.5% in its December meeting, as widely expected.

Technical Analysis: The Indian Rupee keeps the positive outlook unchanged

Indian Rupee edges higher on the day. The USD/INR pair has remained stuck in a multi-month trading range of 82.80–83.40. Technically, USD/INR maintains the bullish vibe as the pair holds above the key 100-day Exponential Moving Average (EMA) on the daily chart. It’s worth noting that the 14-day Relative Strength Index (RSI) bounced off the 50.0 midline for the second time, indicating that bulls remain cautiously optimistic.

The first upside barrier is seen near the upper boundary of the trading range at 83.40. A break above 83.40 will see a rally to the year-to-date (YTD) high of 83.47, followed by the psychological mark of 84.00. On the downside, 83.00 will be the critical support level for USD/INR. Any follow-through selling will see a drop to 82.80, portraying the confluence of the lower limit of the trading range and a low of September 12. The next contention level will emerge near a low of August 11 at 82.60.

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 weakest against the Japanese Yen.

	USD	EUR	GBP	CAD	AUD	JPY	NZD	CHF
USD		-2.05%	-1.64%	-1.41%	-1.77%	-2.15%	-1.19%	-1.46%
EUR	2.00%		0.40%	0.61%	0.27%	-0.10%	0.84%	0.57%
GBP	1.62%	-0.40%		0.22%	-0.13%	-0.51%	0.44%	0.17%
CAD	1.40%	-0.61%	-0.23%		-0.34%	-0.71%	0.23%	-0.04%
AUD	1.74%	-0.27%	0.11%	0.34%		-0.38%	0.56%	0.30%
JPY	2.11%	0.09%	0.38%	0.72%	0.39%		0.93%	0.68%
NZD	1.18%	-0.84%	-0.44%	-0.23%	-0.57%	-0.94%		-0.26%
CHF	1.44%	-0.57%	-0.20%	0.03%	-0.30%	-0.68%	0.25%

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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