Home Forex USD/INR falls ahead of India's CPI data

USD/INR falls ahead of India's CPI data

by SuperiorInvest


  • The Indian rupee strengthened in a quiet session on Monday
  • The Reserve Bank of India (RBI) is expected to cut rates by 25 basis points in each of the third and fourth quarters.
  • Investors await India's CPI inflation data due at 12:00 GMT on Monday.

The Indian rupee (INR) rebounded on Monday amid muted early trading, with most Asian markets closed. Consumer of India Price index (CPI) for January will be in focus at the start of the week. The Reserve Bank of India (RBI) kept its repo rate at 6.50% for the sixth consecutive meeting on February 8, citing food price shocks as a significant risk to the current disinflationary trend.

India's central bank is expected to keep its key policy rate unchanged until the June meeting before cutting it by 25 basis points (bps) in the third and fourth quarters, a relatively modest move compared to the easing cycles of other major central banks.

On the other hand, robust US economic data and a rebound from Fed officials on market expectations of an early rate cut will strengthen the USD and lift US bond yields, acting as a tailwind for the USD/INR pair.

India's CPI inflation, industrial production and manufacturing data are due at 12:00 GMT on Monday. The Wholesale Price Index (WPI) of Food, Fuel and Inflation for January will be released on Wednesday.

As for the US, the January CPI report will take center stage on Tuesday. The headline consumer price index (CPI) is expected to slow from 3.4% in December to 3.0% in January. Inflation news over the next few months could be critical in determining when the Fed will cut its benchmark interest rate.

Daily Digest Market Movers: Indian rupee remains vulnerable to high inflation and global factors

  • Headline CPI inflation was forecast to fall to 5.09% in January from 5.69% in December.
  • Inflation will average 5.4% this fiscal year and 4.7% next, close to the RBI's forecasts of 5.4% and 4.5%, according to a Reuters poll.
  • Indian bond yields jumped after the RBI's rate decision, with the yield on the benchmark 10-year note closing at 7.1067% on Friday, the highest since January 31.
  • Revised CPI data rose 0.2% in December from the previous month, compared with the original estimate of 0.3%, the Bureau of Labor Statistics said on Friday.
  • Dallas Fed President Lorie Logan said she is in no rush to cut interest rates. She added that while there had been “tremendous progress” in reducing inflation, more data was needed to confirm that the progress was sustainable.

Technical Analysis: The Indian Rupee faces further range bound movement in the long term

The Indian rupee is trading strongly on the day. USD/INR remains capped in a multi-month downtrend channel between 82.70 and 83.20.

In the near term, the pair is below the key 100-period exponential moving average (EMA) on the daily time frame, suggesting that sellers are likely to remain in control. Additionally, the 14-day Relative Strength Index (RSI) lies below the 50.0 midline, suggesting support levels are likely to break rather than hold.

If the sellers take back control of USD/INR, the initial support level will be seen at the February 2 low at 82.83. A critical upside barrier appears near the bottom of the downtrend channel at 82.70. Sustained bearish pressure could still pave the way to the August 23 low at 82.45, followed by the June 1 low at 82.25.

In the case of a bullish trading environment, the confluence of the upper border of the downtrend channel, the psychological round number and the 100-period EMA in the 83.00-83.05 zone acts as a key resistance level for USD/INR. A clear upside breakout above this region will move towards the January 18 high at 83.20. We may see a trip to the January 2 high at 83.35 and the psychological level of 84.00 if there is enough bullish momentum.

Today's price in US dollars

The table below shows today's percentage change in the US dollar (USD) against the major currencies listed. The US dollar was the weakest against the Canadian dollar.

American dollar euros GBP CAD AUD JPY NZD CHF
American dollar 0.07% 0.07% 0.02% 0.05% 0.04% 0.28% 0.04%
euros -0.07% 0.00% -0.05% -0.01% -0.03% 0.21% -0.03%
GBP -0.07% 0.00% -0.06% -0.01% -0.04% 0.20% -0.04%
CAD -0.02% 0.05% 0.06% 0.04% 0.02% 0.26% 0.02%
AUD -0.07% 0.00% 0.00% -0.05% -0.03% 0.21% -0.03%
JPY -0.04% 0.03% 0.06% -0.01% 0.02% 0.24% 0.00%
NZD -0.30% -0.22% -0.21% -0.26% -0.24% -0.25% -0.25%
CHF -0.02% 0.05% 0.03% 0.00% 0.04% 0.02% 0.24%

The heat map shows the percentage changes of major currencies against each other. The base currency is selected from the left column, while the quote currency is selected from the top row. For example, if you select the Euro from the left column and move along the horizontal line to the Japanese Yen, the percentage change shown in the box will be EUR (base)/JPY (rate).

Frequently asked questions about Indian Rupees

The Indian Rupee (INR) is one of the most sensitive currencies to external factors. The price of crude oil (the country is heavily dependent on imported oil), the value of the US dollar – most trade is done in USD – and the level of foreign investment all have an impact. Direct interventions by the Reserve Bank of India (RBI) in the foreign exchange markets to keep the exchange rate stable, as well as the level of interest rates set by the RBI, are other major factors affecting the rupee.

The Reserve Bank of India (RBI) actively intervenes in the foreign exchange markets to maintain a stable exchange rate to help facilitate trade. In addition, the RBI is trying to keep 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 to put their money in countries that offer relatively higher interest rates and profit from the difference.

Macroeconomic factors that affect the value of the rupee include inflation, interest rates, economic growth rate (GDP), trade balance and foreign investment inflows. A higher growth rate may lead to more foreign investment, which will increase demand for the rupee. A less negative trade balance will eventually lead to a stronger rupee. Higher interest rates, especially real rates (interest rates less inflation), are also positive for the rupee. The risk-on environment may lead to greater inflows of foreign direct and indirect investment (FDI and FII), benefiting the rupee as well.

Higher inflation, especially if it is comparatively higher than its Indian counterparts, is generally negative for the currency as it reflects devaluation due to excess supply. Inflation also increases the cost of exports, resulting in more rupees being sold to buy foreign imports, which is a negative rupee. At the same time, higher inflation usually leads to the Reserve Bank of India (RBI) raising interest rates, which can be positive for the rupee due to increased demand from international investors. Lower inflation has the opposite effect.

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