USD/INR gains ground ahead of Indian GDP, US PCE data

Source Fxstreet
May 31, 2024 03:01
  • Indian Rupee struggles to gain momentum on the modestly stronger USD. 
  • The Fed’s hawkish stance and cautious mood weigh on the INR. 
  • The Indian GDP and US core PCE data will be the highlights on Friday. 

Indian Rupee (INR) weakens on Friday amid the modest rebound of the US Dollar (USD). The higher-for-longer US rate mantra from the Federal Reserve (Fed) boosts the Greenback and exerts some selling pressure on assets in emerging Asian markets, including the INR. Furthermore, cautious anticipation of the key US inflation data might support the USD for the time being. 

On the other hand, the decline in crude oil prices might cap the downside for the INR, as India is the third largest oil consumer. Economists see India’s economic momentum remaining strong in the January-March quarter (Q4 FY24), with GDP growth at 6.8%. The stronger-than-expected reading could underpin the Indian Rupee and weigh on the pair in the near term. On the US docket, the US Core Personal Consumption Expenditures Price Index (Core PCE) for April will be released. 

Daily Digest Market Movers: Indian Rupee remains weak despite India’s robust economic outlook

  • S&P Global analysts expect robust economic fundamentals in India to underpin the growth momentum over the next two to three years.
  • The Indian Rupee might stand out in the emerging market foreign exchange complex, due to its high carry-to-volatility ratio, said Goldman Sachs analysts. 
  • The US Gross Domestic Product (GDP) expanded at an annual rate of 1.3% in the first quarter from the 1.6% growth recorded in the first estimate and came in line with the market estimation.
  • Initial claims for state unemployment benefits increased by 219K for the week ending May 25, above initial estimates of 218K and above the previous weekly gain of 216K (revised from 215K).
  • Chicago Fed President Austan Goolsbee said on Thursday that inflation could still fall without rising unemployment, adding that the job market remains the strongest part of the economy, per Reuters. 
  • Atlanta Fed President Raphael Bostic stated that inflation will come down slowly, and the Fed is unlikely to deliver an interest rate cut in July. 
  • New York Fed President John Williams said that there is “ample evidence” that monetary policy is restrictive and helps to bring inflation towards the 2% target. Williams added that he doesn’t feel any urgency to cut rates. 

Technical analysis: USD/INR turns bullish in the longer term

The Indian Rupee trades on a weaker note on the day. The USD/INR pair resumes its bullish bias as it holds above the key 100-day Exponential Moving Average (EMA) on the daily chart. Further consolidation is not ruled out as the 14-day Relative Strength Index (RSI) hovers around the 50-midline. 

USD/INR has established a descending trend channel since mid-April. The first upside barrier will emerge near the upper boundary of the channel at 83.40. A bullish breakout will pave the way to a high of May 13 at 83.54, followed by a high of April 17 at 83.72 and then the 84.00 psychological level. 

On the downside, the initial support level for USD/INR is located near the 100-day EMA around 83.20. The potential downside target to watch is the 83.00 round mark. A break below the mentioned level will see a drop to a low of January 15 at 82.78 and finally a low of March 11 at 82.65. 

US Dollar price today

The table below shows the percentage change of US Dollar (USD) against listed major currencies today. US Dollar was the strongest against the Euro.

  USD EUR GBP CAD AUD JPY NZD CHF
USD   0.17% 0.07% 0.02% 0.01% -0.12% -0.09% 0.04%
EUR -0.15%   -0.08% -0.14% -0.14% -0.27% -0.23% -0.11%
GBP -0.08% 0.07%   -0.07% -0.07% -0.20% -0.17% -0.05%
CAD -0.02% 0.11% 0.07%   -0.02% -0.14% -0.11% 0.02%
AUD 0.01% 0.11% 0.07% 0.01%   -0.13% -0.10% 0.03%
JPY 0.12% 0.25% 0.18% 0.13% 0.13%   0.03% 0.15%
NZD 0.05% 0.24% 0.17% 0.09% 0.10% -0.05%   0.13%
CHF -0.03% 0.12% 0.04% -0.02% -0.01% -0.15% -0.10%  

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 Rupee FAQs

The Indian Rupee (INR) is one of the most sensitive currencies to external factors. The price of Crude Oil (the country is highly dependent on imported Oil), the value of the US Dollar – most trade is conducted in USD – and the level of foreign investment, are all influential. Direct intervention by the Reserve Bank of India (RBI) in FX markets to keep the exchange rate stable, as well as the level of interest rates set by the RBI, are further major influencing factors on the Rupee.

The Reserve Bank of India (RBI) actively intervenes in forex markets to maintain a stable exchange rate, to help facilitate trade. In addition, the RBI tries to maintain 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 so as to place their money in countries’ offering relatively higher interest rates and profit from the difference.

Macroeconomic factors that influence the value of the Rupee include inflation, interest rates, the economic growth rate (GDP), the balance of trade, and inflows from foreign investment. A higher growth rate can lead to more overseas investment, pushing up demand for the Rupee. A less negative balance of trade will eventually lead to a stronger Rupee. Higher interest rates, especially real rates (interest rates less inflation) are also positive for the Rupee. A risk-on environment can lead to greater inflows of Foreign Direct and Indirect Investment (FDI and FII), which also benefit the Rupee.

Higher inflation, particularly, if it is comparatively higher than India’s peers, is generally negative for the currency as it reflects devaluation through oversupply. Inflation also increases the cost of exports, leading to more Rupees being sold to purchase foreign imports, which is Rupee-negative. At the same time, higher inflation usually leads to the Reserve Bank of India (RBI) raising interest rates and this can be positive for the Rupee, due to increased demand from international investors. The opposite effect is true of lower inflation.

 

Disclaimer: For information purposes only. Past performance is not indicative of future results.
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