- Indian Rupee loses traction amid the mixed sentiment.
- Economists noted that GDP growth in July-September will be higher than the RBI’s prediction of 6.5%.
- Investors will monitor the US Building Permits and Housing Starts on Friday.
Indian Rupee (INR) trades cautiously on the day. A report in the Reserve Bank of India’s monthly bulletin said festival-related demand in India has been “ebullient” and consumer sentiment is upbeat. However, there were “miles to go” on the inflation front, and India is “not out of the woods yet”.
There is a wide consensus supported by economists that Indian GDP growth in the third quarter (Q3) 2023-24 will outperform the projections of the central bank. Nonetheless, the Indian Rupee remains vulnerable to higher crude prices and US Treasury bond yields. Later on Friday, market players will monitor the US housing data, including Building Permits and Housing Starts.
Daily Digest Market Movers: Indian Rupee remains sensitive to global factors
- The momentum of the change in India’s GDP is sequentially expected to be higher in the third quarter of 2023-24, with festival demand remaining ebullient, according to a report in the Reserve Bank of India’s monthly bulletin.
- RBI forecasts the Indian economy to post a GDP growth rate of 6.5% in 2023-24.
- The Reserve Bank of India (RBI) is likely to leave the policy rate unchanged at its next monetary policy meeting scheduled for December 6-8.
- India’s trade deficit widened to $31.46B in October from $19.37B in the previous month due to a sharp rise in gold imports during the festival season.
- India’s Exports grew by 6.2% to $33.57B in October from $34.47B in September. Imports climbed to $65.03B from the previous month’s $ 53.84 B.
- India’s headline retail price inflation dropped to 4.9% in October from 5% the previous month, the lowest level in four months.
- India’s Wholesale Price Index (WPI) inflation came in at -0.52% from the previous reading of -0.26%, worse than the market expectation of -0.20%.
- India’s Consumer Price Index (CPI) grew by 4.87% YoY in October versus 5.02% prior, beating the market consensus of 4.80%.
- The weekly US Initial Claims reached the highest level in nearly three months, climbing by 231K. The Continuing Jobless Claims reached the highest level since 2022.
- The US Industrial Production fell 0.6% MoM in October from a 0.1% rise in the previous month, below the market estimation.
- Fed fund futures are now pricing no further US rate hikes in this cycle, and expect a rate cut by the middle of 2024.
Technical Analysis: The Indian Rupee maintains a bearish outlook
The Indian Rupee edges lower on the day. The USD/INR pair has traded between 82.80 and 83.35 in a wider trading band since September. Technically, the USD/INR keeps the bullish stance as the pair holds above the key 100-day Exponential Moving Average (EMA) on the daily chart.
That being said, the upper boundary of the trading range of 83.35 acts as the immediate resistance level for the pair. The continuation of the upward bias could see the rally to a year-to-date (YTD) high of 83.47. A decisive break would expose the psychological round figure at 84.00.
On the other hand, the initial support level for USD/INR is located near a low of September 12 at 82.80. If sellers push prices below that level, the next contention to watch is a low of August 11 at 82.60, followed by a low of August 24 at 82.37.
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 Japanese Yen.
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 role of the Reserve Bank of India (RBI), in its own words, is “..to maintain price stability while keeping in mind the objective of growth.” This involves maintaining the inflation rate at a stable 4% level primarily using the tool of interest rates. The RBI also maintains the exchange rate at a level that will not cause excess volatility and problems for exporters and importers, since India’s economy is heavily reliant on foreign trade, especially Oil.
The RBI formally meets at six bi-monthly meetings a year to discuss its monetary policy and, if necessary, adjust interest rates. When inflation is too high (above its 4% target), the RBI will normally raise interest rates to deter borrowing and spending, which can support the Rupee (INR). If inflation falls too far below target, the RBI might cut rates to encourage more lending, which can be negative for INR.
Due to the importance of trade to the economy, the Reserve Bank of India (RBI) actively intervenes in FX markets to maintain the exchange rate within a limited range. It does this to ensure Indian importers and exporters are not exposed to unnecessary currency risk during periods of FX volatility. The RBI buys and sells Rupees in the spot market at key levels, and uses derivatives to hedge its positions.
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