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- USD/INR reverses recent losses on the stronger US Dollar, geopolitical risks
USD/INR reverses recent losses on the stronger US Dollar, geopolitical risks
- 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 ongoing 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 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 | 0.21% | 0.22% | 0.25% | 0.38% | 0.18% | 0.32% | 0.19% | |
| EUR | -0.21% | 0.02% | 0.05% | 0.17% | -0.03% | 0.10% | -0.02% | |
| GBP | -0.24% | -0.02% | 0.01% | 0.14% | -0.06% | 0.06% | -0.05% | |
| CAD | -0.26% | -0.05% | -0.03% | 0.12% | -0.08% | 0.06% | -0.07% | |
| AUD | -0.38% | -0.16% | -0.13% | -0.12% | -0.18% | -0.06% | -0.18% | |
| JPY | -0.18% | 0.02% | 0.04% | 0.07% | 0.18% | 0.13% | 0.00% | |
| NZD | -0.33% | -0.09% | -0.06% | -0.05% | 0.06% | -0.12% | -0.13% | |
| CHF | -0.19% | 0.03% | 0.05% | 0.07% | 0.18% | -0.01% | 0.11% |
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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