- Indian Rupee attracts some sellers amid the rising tension in the Red Sea and firmer US Dollar.
- India's wholesale inflation rose to a nine-month high of 0.73% in December.
- The ongoing tension in the Red Sea will lead to an oil price hike in India, the world's third biggest oil importer and consumer.
Indian Rupee (INR) loses traction on Tuesday on the stronger US Dollar (USD). India's wholesale inflation, as measured by the Wholesale Price Index (WPI) is outside the deflationary zone for the second month in a row and reached the highest in the past nine months, primarily due to a rise in food prices.
The World Economic Forum (WEF) president Borge Brende said on Monday that Houthi attacks on commercial ships in the Red Sea would have a negative impact on the global supply chain and would lead to a $10–20 increase in oil prices. This, in turn, could have negative effects on oil-importing countries, including India. Furthermore, the escalating tension in the Red Sea boosts safe-haven assets like the Greenback and acts as a tailwind for the USD/INR pair.
Market players will keep an eye on the development surrounding the Middle East geopolitical tension. Later on Tuesday, the US NY Empire State Manufacturing Index will be due. The US Retail Sales on Wednesday will be in the spotlight, which is projected to show an increase of 0.4% in December.
Daily Digest Market Movers: Indian Rupee remains sensitive to the escalating tensions in the Red Sea
- India’s December WPI inflation arrived at 0.73% YoY versus 0.26% prior, worse than the market expectation of 0.90%.
- India’s Wholesale Price Food Index came in at 5.39% YoY in December.
- India’s WPI Manufacturing for December Inflation fell 0.71% YoY from the previous reading of a 0.64% decline.
- India's December goods imports totaled $58.25 billion, while its exports arrived at $38.45 billion. The country's trade deficit decreased to $19.8 billion in December 2023 from $23.14 billion in the same month the previous year.
- The World Economic Forum (WEF) president Borge Brende expressed optimism about the Indian economy and said it was predicted to grow at 8% this year.
- The Atlanta Federal Reserve (Fed) Raphael Bostic said that rates need to stay on hold until at least summer to prevent prices from rising again.
- Bostic further stated that inflation must surely get back to the 2% target and a bad outcome could occur if policymakers start easing too fast.
Technical Analysis: Indian Rupee keeps the negative outlook in the shorter term
Indian Rupee trades weaker on the day. The USD/INR pair has remained stuck within the familiar trading band between 82.80 and 83.40 since September 2023. According to the daily chart, the further downside of USD/INR looks favorable as the pair holds below the key 100-period Exponential Moving Average (EMA). The downward momentum is backed by the 14-day Relative Strength Index (RSI) which is below the 50.0 midpoint, suggesting the sellers look to retain control in the near term.
The support-turned-resistance at 83.00 psychological mark acts as an immediate resistance level for USD/INR. The additional upside filter to watch is the upper boundary of the trading range at 83.40 and a round figure at 84.00. On the flip side, the confluence of the lower limit of the trading range and a low of September 12 at 82.80 acts as a critical contention level. A decisive break below 82.80 will pave the way to a low of August 11 at 82.60, en route to a low of August 24 at 82.40.
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 Australian Dollar.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | 0.27% | 0.26% | 0.31% | 0.59% | 0.26% | 0.40% | 0.37% | |
| EUR | -0.27% | 0.00% | 0.04% | 0.32% | -0.02% | 0.11% | 0.10% | |
| GBP | -0.28% | -0.01% | 0.02% | 0.31% | -0.03% | 0.10% | 0.08% | |
| CAD | -0.31% | -0.04% | -0.04% | 0.28% | -0.06% | 0.08% | 0.06% | |
| AUD | -0.59% | -0.32% | -0.32% | -0.29% | -0.33% | -0.19% | -0.20% | |
| JPY | -0.28% | -0.01% | -0.02% | 0.04% | 0.33% | 0.12% | 0.09% | |
| NZD | -0.41% | -0.12% | -0.12% | -0.10% | 0.19% | -0.14% | -0.03% | |
| CHF | -0.37% | -0.10% | -0.10% | -0.06% | 0.20% | -0.12% | 0.02% |
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).
Risk sentiment FAQs
What do the terms"risk-on" and "risk-off" mean when referring to sentiment in financial markets?
In the world of financial jargon the two widely used terms “risk-on” and “risk off'' refer to the level of risk that investors are willing to stomach during the period referenced. In a “risk-on” market, investors are optimistic about the future and more willing to buy risky assets. In a “risk-off” market investors start to ‘play it safe’ because they are worried about the future, and therefore buy less risky assets that are more certain of bringing a return, even if it is relatively modest.
What are the key assets to track to understand risk sentiment dynamics?
Typically, during periods of “risk-on”, stock markets will rise, most commodities – except Gold – will also gain in value, since they benefit from a positive growth outlook. The currencies of nations that are heavy commodity exporters strengthen because of increased demand, and Cryptocurrencies rise. In a “risk-off” market, Bonds go up – especially major government Bonds – Gold shines, and safe-haven currencies such as the Japanese Yen, Swiss Franc and US Dollar all benefit.
Which currencies strengthen when sentiment is "risk-on"?
The Australian Dollar (AUD), the Canadian Dollar (CAD), the New Zealand Dollar (NZD) and minor FX like the Ruble (RUB) and the South African Rand (ZAR), all tend to rise in markets that are “risk-on”. This is because the economies of these currencies are heavily reliant on commodity exports for growth, and commodities tend to rise in price during risk-on periods. This is because investors foresee greater demand for raw materials in the future due to heightened economic activity.
Which currencies strengthen when sentiment is "risk-off"?
The major currencies that tend to rise during periods of “risk-off” are the US Dollar (USD), the Japanese Yen (JPY) and the Swiss Franc (CHF). The US Dollar, because it is the world’s reserve currency, and because in times of crisis investors buy US government debt, which is seen as safe because the largest economy in the world is unlikely to default. The Yen, from increased demand for Japanese government bonds, because a high proportion are held by domestic investors who are unlikely to dump them – even in a crisis. The Swiss Franc, because strict Swiss banking laws offer investors enhanced capital protection.
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