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- USD/INR weakens ahead of Indian CPI data
USD/INR weakens ahead of Indian CPI data
- Indian Rupee edges higher on Wednesday amid the firmer US Dollar.
- The potential FX intervention from the RBI might protect INR from further weakness.
- The Indian Consumer Price Index (CPI) for May is due on Wednesday ahead of the US key events.
Indian Rupee (INR) trades on a positive note on Wednesday despite the stronger US Dollar (USD). The downside for the INR might be limited as the Reserve Bank of India (RBI) is likely to prevent local currency from depreciating. On the other hand, the weakness in Asian peers, the rise in crude oil prices, and the cautious mood might drag the INR lower.
India’s May Consumer Price Index (CPI) and Industrial Production are due on Wednesday. On the US front, the CPI inflation data will be released ahead of the Federal Reserve (Fed) monetary policy meeting. The Fed is widely expected to maintain policy rates steady at its June meeting on Wednesday. Investors will closely monitor Fed Chair Jerome Powell's message during the press conference for more clues about any modifications to the interest rate dot plot. The hawkish tone from the Fed’s Powell could boost the US Dollar and create a tailwind for the pair.
Daily Digest Market Movers: Indian Rupee gains ground ahead of the key events from both India and the US
- The one-month implied volatility of the USD/INR pair has dropped to 2.20%, down from a six-month peak of 3.35% in May.
- “Don’t think there’s a lot of fresh positioning (on USD/INR) currently as people are mostly waiting for Fed and US (inflation) data,” said a foreign exchange trader at a private bank.
- India’s CPI inflation is expected to rise to 4.90 YoY in May from 4.83% in April.
- World Bank stated in its June Global Economic Prospects report that India will remain the fastest-growing of the world’s largest economies with a steady average annual growth of 6.7% between FY25 and FY27.
- The US headline CPI figure is estimated to show an increase of 3.4% YoY in May, while the core CPI for May is projected to rise 3.5% YoY.
- Interest rate futures are pricing in about 38 basis points (bps) of rate cuts over 2024, down from nearly 50 bps last week.
Technical analysis: USD/INR’s positive outlook persists in the longer term
The Indian Rupee trades stronger on the day. The positive outlook of the USD/INR pair prevails as the pair is above the key 100-day Exponential Moving Average (EMA) and descending trend channel upper boundary.
Further consolidation cannot be ruled out in the near term, supported by the neutral 14-day Relative Strength Index (RSI), which stands flat around the 50-midline.
The next upside barrier will emerge at 83.72, a high of April 17. Further north, the next hurdle to watch is the 84.00 psychological mark. On the flip side, the crucial support level is seen at 83.30, portraying the confluence of the 100-day EMA and descending trend channel upper boundary. A breach of this level will pave the way to 82.78, a low of January 15.
US Dollar price today
The table below shows the percentage change of US Dollar (USD) against listed major currencies today. US Dollar was the weakest against the .
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | -0.02% | -0.01% | -0.04% | -0.09% | 0.01% | -0.01% | -0.03% | |
| EUR | 0.02% | 0.00% | -0.02% | -0.07% | 0.03% | -0.01% | -0.01% | |
| GBP | 0.01% | 0.00% | -0.02% | -0.08% | 0.02% | 0.00% | -0.02% | |
| CAD | 0.04% | 0.02% | 0.04% | -0.05% | 0.05% | 0.02% | 0.00% | |
| AUD | 0.09% | 0.07% | 0.07% | 0.05% | 0.10% | 0.07% | 0.06% | |
| JPY | -0.01% | -0.04% | -0.03% | -0.06% | -0.10% | 0.00% | -0.04% | |
| NZD | 0.01% | 0.00% | 0.00% | -0.03% | -0.08% | 0.03% | -0.01% | |
| CHF | 0.03% | 0.01% | 0.02% | -0.01% | -0.06% | 0.04% | 0.01% |
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
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.
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.
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.
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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