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  • Indian Rupee edges higher on Monday on the softer US Dollar (USD).
  • A lower US Treasury bond yields and RBI’s potential intervention might limit the INR’s downside.
  • Investors will focus on the Federal Open Market Committee (FOMC) meeting and OMO sales.

Indian Rupee (INR) trades modestly higher on Monday on the weaker US Dollar (USD). Meanwhile, a pullback in the US Treasury bond yields and the potential intervention from the Reserve Bank of India (RBI) might cap the further depreciation of INR. Furthermore, market participants will keep an eye on whether the RBI starts selling bonds via open market operations (OMO) this week as liquidity improves. Apart from this, India’s Fiscal Deficit and Infrastructure Output for September will be released on Tuesday.

Investors will closely monitor the Federal Open Market Committee’s (FOMC) interest rate decision at the end of its two-day meeting on Wednesday. The markets anticipate the FOMC to maintain rates steady, despite the Fed’s preferred gauge for inflation, the Core Personal Consumption Expenditures Price Index (PCE) remains well above the 2% target rate.

Daily Digest Market Movers: Indian Rupee gains momentum, USD weakens ahead of the key event

  • The US Core Personal Consumption Expenditure Index (PCE) came in at 3.7% YoY in September from the previous figure of 3.8%, matching the market consensus. The headline PCE arrived at 3.4% YoY vs the expectation of 3.4%.
  • The Michigan Consumer Confidence Index improved to 63.8, better than the 68 expected.
  • UoM inflation expectations for a one-year period are expected to rise by 4.2%, while for a five-year period are expected to stay at 3%.
  • Foreign investors sold $1.67 billion in Indian equities in October, which might exert pressure on the Indian Rupee.
  • US Q3 GDP expanded at an annualized rate of 4.9%, above the market estimation of 4.2%.
  • The Reserve Bank of India (RBI) is expected to meet with top bank officials this week to discuss the banking system’s present liquidity condition.
  • The RBI’s monetary policy committee said the central bank will continue to keep an eye on maintaining inflation at the 4% target.
  • RBI estimated that India’s GDP would increase at a 6.5% annual rate in the current fiscal year.
  • The International Monetary Fund (IMF) revised its forecast growth rate for India to 6.3% in October.
  • Growth in India is expected to gain momentum for the remainder of 2023, according to the RBI’s October bulletin.
  • India’s Wholesale Price Index (WPI) for September, a measure of inflation, fell -0.26% YoY from the previous reading of 0.52%, worse than the market expectation of 0.50%.

Technical Analysis: The Indian Rupee remains confined in a familiar range

The Indian Rupee moves slightly higher on the day. The USD/INR pair trades within a range of 83.00-83.35. The upward bias of USD/INR remains intact as the pair holds above the 100- and 200-day Exponential Moving Averages (EMA) on the daily chart.

On the upside, any decisive follow-through buying above 83.35 will pave the way to year-to-date (YTD) highs of 83.45. The additional upside filter to watch is a psychological round mark at 84.00. On the other hand, the critical support level will emerge at 83.00, portraying the confluence of a low of October 20 and a round figure. A break below 83.00 could see a drop to 82.82 (low of September 12), followed by 82.65 (low of August 4).

US Dollar price in the last 7 days

The table below shows the percentage change of US Dollar (USD) against listed major currencies in the last 7 days. US Dollar was the weakest against the Australian Dollar.

  USD EUR GBP CAD AUD JPY NZD CHF
USD   0.28% 0.37% 1.08% -0.59% -0.17% 0.04% 1.11%
EUR -0.28%   0.09% 0.80% -0.87% -0.45% -0.24% 0.84%
GBP -0.36% -0.10%   0.71% -0.97% -0.54% -0.34% 0.76%
CAD -1.09% -0.81% -0.74%   -1.69% -1.25% -1.05% 0.04%
AUD 0.59% 0.89% 0.98% 1.67%   0.44% 0.62% 1.71%
JPY 0.17% 0.44% 0.51% 1.24% -0.47%   0.18% 1.28%
NZD -0.03% 0.25% 0.34% 1.03% -0.63% -0.20%   1.07%
CHF -1.13% -0.86% -0.76% -0.04% -1.74% -1.30% -1.10%  

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 economy FAQs

The Indian economy has averaged a growth rate of 6.13% between 2006 and 2023, which makes it one of the fastest growing in the world. India’s high growth has attracted a lot of foreign investment. This includes Foreign Direct Investment (FDI) into physical projects and Foreign Indirect Investment (FII) by foreign funds into Indian financial markets. The greater the level of investment, the higher the demand for the Rupee (INR). Fluctuations in Dollar-demand from Indian importers also impact INR.

India has to import a great deal of its Oil and gasoline so the price of Oil can have a direct impact on the Rupee. Oil is mostly traded in US Dollars (USD) on international markets so if the price of Oil rises, aggregate demand for USD increases and Indian importers have to sell more Rupees to meet that demand, which is depreciative for the Rupee.

Inflation has a complex effect on the Rupee. Ultimately it indicates an increase in money supply which reduces the Rupee’s overall value. Yet if it rises above the Reserve Bank of India’s (RBI) 4% target, the RBI will raise interest rates to bring it down by reducing credit. Higher interest rates, especially real rates (the difference between interest rates and inflation) strengthen the Rupee. They make India a more profitable place for international investors to park their money. A fall in inflation can be supportive of the Rupee. At the same time lower interest rates can have a depreciatory effect on the Rupee.

India has run a trade deficit for most of its recent history, indicating its imports outweigh its exports. Since the majority of international trade takes place in US Dollars, there are times – due to seasonal demand or order glut – where the high volume of imports leads to significant US Dollar- demand. During these periods the Rupee can weaken as it is heavily sold to meet the demand for Dollars. When markets experience increased volatility, the demand for US Dollars can also shoot up with a similarly negative effect on the Rupee.

Source: https://www.fxstreet.com/news/usd-inr-stages-a-modest-recovery-focus-on-rbis-omo-202310300220