- Indian rupee trades weaker amid USD recovery.
- The RBI is expected to wait for the US Fed to take action before adjusting its monetary policy.
- The FOMC and RBI meeting minutes will be in focus this week.
The Indian Rupee (INR) weakens to a stronger one on Tuesday American dollar (AMERICAN DOLLAR). The INR is expected to trade with a slight positive bias, supported by carry trades and speculation that the Reserve Bank of India (RBI) will ease monetary policy at a slower pace than Fed. However, continued debt-related dollar inflows, higher oil oiland rising US bond yields could limit the pair's gains in the near term.
Goldman Sachs expects two rate cuts in India in the second half of the year. If the economy is worse than expected, the RBI may be forced to cut interest rates faster and deeper.
Traders will be watching minutes from the latest Federal Open Market Committee (FOMC) and RBI meetings later on Wednesday and Thursday.
Daily Digest Market Movers: Indian rupee weakens in face of multiple headwinds and uncertainties
- Foreign investors bought about $2 billion worth of Indian bonds in February, following purchases of $2.3 billion the previous month.
- Goldman Sachs economists said India's economic growth could exceed 6% for the rest of the decade, leading to more investment from China in the South Asian country.
- Commerce and Industry Minister Piyush Goyal said the government's ambition is to expand India's current $3.7 trillion economy to a fully developed $30-35 trillion economy by 2047.
- The US producer price index (PPI) rose 0.3% month-on-month in January from a 0.1% decline in December. PPI rose 0.9% year-on-year, beating market expectations.
- Stronger-than-expected inflation data prompted Fed policymakers to increase their cautious stance on cutting interest rates this year.
- Markets expect the first rate cut of 25 basis points (bps) in 2024 as early as June, according to CME FedWatch Tools.
Latest article: Nifty and Sensex will start Tuesday in the red
Technical Analysis: Indian Rupee softens in longer-term trading range
The Indian rupee is trading softer during the day. USD/INR it remains stuck in a multi-month downtrend channel between 82.70 and 83.20 as of December 8, 2023.
In the short term, the pair is trading sideways with indecisive action. It is worth noting that the 14-day Relative Strength Index (RSI) is hovering around the midline of 50.0, indicating flattening momentum for the pair.
A break above the top of the Bollinger Band at 83.15 could signal a rise to the top of the downtrend channel at 83.20. Any subsequent buy above 83.20 will reveal the January 2 high at 83.35, on the way to the psychological level of 84.00.
On the downside, a move below the lower Bollinger band at 82.90 could trigger a test of the lower boundary of the downtrend channel at 82.70, followed by the August 23 low at 82.45.
The price of the US dollar this week
The table below shows the percentage change of the US dollar (USD) against the major listed currencies for the week. The US dollar was strongest against the Swiss franc.
| American dollar | euros | GBP | CAD | AUD | JPY | NZD | CHF | |
| American dollar | 0.16% | 0.20% | 0.21% | 0.16% | 0.15% | -0.03% | 0.24% | |
| euros | -0.16% | 0.05% | 0.05% | 0.01% | 0.00% | -0.19% | 0.09% | |
| GBP | -0.20% | -0.05% | 0.01% | -0.04% | -0.05% | -0.24% | 0.05% | |
| CAD | -0.21% | -0.06% | 0.01% | -0.05% | -0.06% | -0.25% | 0.04% | |
| AUD | -0.16% | -0.01% | 0.04% | 0.05% | -0.01% | -0.19% | 0.08% | |
| JPY | -0.14% | 0.00% | 0.08% | 0.05% | 0.01% | -0.17% | 0.10% | |
| NZD | 0.03% | 0.19% | 0.23% | 0.24% | 0.19% | 0.18% | 0.28% | |
| CHF | -0.25% | -0.09% | -0.05% | -0.04% | -0.09% | -0.10% | -0.29% |
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 the Indian economy
India's economy has averaged 6.13% growth between 2006 and 2023, making 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) in physical projects and foreign indirect investment (FII) by foreign funds in Indian financial markets. The higher the level of investment, the higher the demand for the rupee (INR). Fluctuations in dollar demand from Indian importers also affect the INR.
India has to import a large amount of its oil and petrol, so the price of oil can have a direct impact on the rupee. Oil is mostly traded in US Dollars (USD) in international markets, so if the price of oil rises, the overall demand for USD will increase and Indian importers have to sell more Rupees to meet this demand, depreciating the Rupee.
Inflation has a complex effect on the rupee. Ultimately, this indicates an increase in the money supply, which reduces the overall value of the rupee. However, if it rises above the Reserve Bank of India's (RBI) 4% target, the RBI will raise interest rates to bring them 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. Falling inflation may support the rupee. At the same time, lower interest rates may have a depreciating effect on the rupee.
India has run a trade deficit for most of its recent history, indicating that its imports outweigh its exports. Since most international trade is done in US dollars, there are times – due to seasonal demand or over-ordering – when a high volume of imports leads to a strong demand for US dollars. During these periods, the rupee can weaken as it is sold heavily to meet the demand for dollars. When markets experience increased volatility, demand for US dollars may also shoot up with a similar negative impact on the rupee.
