Indian Rupee (INR) loses ground on Friday as the US Dollar (USD) attracts some buyers during the session. India's economy has shown resilience in the face of the global downturn, owing to its dependence on local demand. Many analysts projected the second-quarter (Q2) Indian GDP from the Central Statistical Office to grow faster than the 6.5% expected by the Reserve Bank of India (RBI).
In the meantime, oil prices need to be closely monitored as the Organization of the Petroleum Exporting Countries and its allies (OPEC+) will hold their next meeting on November 30 to discuss oil supply cuts. That being said, India is particularly vulnerable to higher crude prices as the country is the world's third-biggest oil consumer.
The US market was closed on Thursday in observance of Thanksgiving Day, and the trading session on Friday will be shortened. Market players will keep an eye on the US S&P Global PMI data for fresh impetus. Next week, the Indian market will be closed on Monday for the Guru Nanak Jayanti holiday. Nonetheless, the highlight will be India’s Gross Domestic Product (GDP) Quarterly for the second quarter, due on Thursday.
The Indian Rupee trades weaker on the day. The USD/INR pair breaks above the trading range of 82.80–83.35 since September. According to the daily chart, the technical outlook suggests that the bullish bias stays intact as the pair holds above the key 100-day Exponential Moving Average (EMA) with an upward slope. Furthermore, the 14-day Relative Strength Index (RSI) holds above the 50.0 midline, reflecting that further upside looks favorable.
That being said, the year-to-date (YTD) high of 83.47 will be the immediate resistance level for USD/INR, en route to a psychological round mark at 84.00. On the flip side, 83.35 acts as a throwback support. Any follow-through selling below 83.35 will see a drop to the confluence of the lower limit of the trading range and a low of September 12 at 82.80. A decisive break below 82.80 will pave the way to a low of August 11 at 82.60.
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 | 0.05% | 0.02% | 0.07% | 0.03% | -0.08% | -0.04% | -0.02% | |
EUR | -0.05% | -0.03% | 0.03% | -0.02% | -0.12% | -0.09% | -0.07% | |
GBP | -0.02% | 0.03% | 0.06% | 0.02% | -0.09% | -0.06% | -0.05% | |
CAD | -0.08% | -0.04% | -0.06% | -0.05% | -0.15% | -0.12% | -0.11% | |
AUD | -0.02% | 0.02% | -0.01% | 0.06% | -0.10% | -0.06% | -0.05% | |
JPY | 0.07% | 0.11% | 0.07% | 0.14% | 0.10% | 0.03% | 0.05% | |
NZD | 0.06% | 0.08% | 0.06% | 0.12% | 0.07% | -0.03% | 0.01% | |
CHF | 0.03% | 0.07% | 0.04% | 0.11% | 0.06% | -0.05% | -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).
The Reserve Bank of Australia (RBA) sets interest rates and manages monetary policy for Australia. Decisions are made by a board of governors at 11 meetings a year and ad hoc emergency meetings as required. The RBA’s primary mandate is to maintain price stability, which means an inflation rate of 2-3%, but also “..to contribute to the stability of the currency, full employment, and the economic prosperity and welfare of the Australian people.” Its main tool for achieving this is by raising or lowering interest rates. Relatively high interest rates will strengthen the Australian Dollar (AUD) and vice versa. Other RBA tools include quantitative easing and tightening.
While inflation had always traditionally been thought of as a negative factor for currencies since it lowers the value of money in general, the opposite has actually been the case in modern times with the relaxation of cross-border capital controls. Moderately higher inflation now tends to lead central banks to put up their interest rates, which in turn has the effect of attracting more capital inflows from global investors seeking a lucrative place to keep their money. This increases demand for the local currency, which in the case of Australia is the Aussie Dollar.
Macroeconomic data gauges the health of an economy and can have an impact on the value of its currency. Investors prefer to invest their capital in economies that are safe and growing rather than precarious and shrinking. Greater capital inflows increase the aggregate demand and value of the domestic currency. Classic indicators, such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can influence AUD. A strong economy may encourage the Reserve Bank of Australia to put up interest rates, also supporting AUD.
Quantitative Easing (QE) is a tool used in extreme situations when lowering interest rates is not enough to restore the flow of credit in the economy. QE is the process by which the Reserve Bank of Australia (RBA) prints Australian Dollars (AUD) for the purpose of buying assets – usually government or corporate bonds – from financial institutions, thereby providing them with much-needed liquidity. QE usually results in a weaker AUD.
Quantitative tightening (QT) is the reverse of QE. It is undertaken after QE when an economic recovery is underway and inflation starts rising. Whilst in QE the Reserve Bank of Australia (RBA) purchases government and corporate bonds from financial institutions to provide them with liquidity, in QT the RBA stops buying more assets, and stops reinvesting the principal maturing on the bonds it already holds. It would be positive (or bullish) for the Australian Dollar.
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