USD/INR trades with mild losses, eyes on US CPI data

Source Fxstreet
Jul 11, 2024 02:11
  • The Indian Rupee edges higher in Thursday’s Asian session. 
  • The persistent Indian foreign inflows and a fall in crude oil prices support the INR. 
  • The US June Consumer Price Index (CPI) inflation data will be the highlight on Thursday.

The Indian Rupee (INR) strengthens on the softer US Dollar (USD) on Thursday. Additionally, the sustained inflow of foreign funds into Indian markets and the decline of crude oil prices all contribute to the INR's upside. The upside of the pair remains capped amid the potential rate cuts by the US Federal Reserve (Fed), even though Fed Chair Jerome Powell said the labor market was better balanced and acknowledged progress on cooling inflation without committing to rate cuts. 

Nonetheless, the renewed Greenback demand from importers due to high oil price pressures might undermine the local currency as India is the third largest consumer of crude oil in the world, after the United States and China. Later on Thursday, investors will closely monitor the release of the US Consumer Price Index (CPI) inflation data for June. Further progress on inflation could lead to key changes in their policy statement that pave the way for a September rate cut. 

Daily Digest Market Movers: Indian Rupee rebounds amid Indian foreign inflows and lower crude oil prices

  • The Indian Rupee is expected to trade with a slight bearish bias on weakness in the domestic market and a positive tone in the US Dollar, said Anuj Choudhary, Research Analyst at Sharekhan by BNP Paribas. 
  • The Fed Chair Jerome Powell responded to questions before the House Financial Services Committee on Wednesday, saying that the Fed will make interest rate decisions based on the data, the incoming data, the evolving outlook, and the balance of risks, and not in consideration of political factors. 
  • Powell further stated that it would not be appropriate to cut the policy rate until they gain greater confidence in inflation heading sustainably towards the Fed’s 2% target. 
  • Fed Governor Lisa Cook said on Thursday that US inflation should continue to fall without a significant further rise in the Unemployment Rate, per Reuters.
  • The probability of the Fed leaving the policy rate unchanged in September stood at nearly 25% following this event, according to the CME FedWatch Tool.
  • The US CPI is projected to show an increase of 3.1% YoY in June, while core inflation is projected to remain steady at 3.4% YoY. 

Technical analysis: USD/INR extends consolidation in the near term

The Indian Rupee trades on a positive note on the day. The USD/INR pair maintains its uptrend on the daily chart, with the pair holding above the key 100-day Exponential Moving Average (EMA). 

In the near term, further consolidation remains in play as the pair has traded within a familiar trading range since March 21. The neutral momentum is also supported by the 14-day Relative Strength Index (RSI), which hovers around the 50-midline.

Sustained trading above the upper boundary of the trading range at 83.65 will pave the way to the all-time high of 83.75. Further north, the next hurdle is seen at the 84.00 psychological barrier. 

On the other hand, a decisive break below the 100-day EMA at 83.36 could draw in enough bearish demand to the 83.00 round mark. The additional downside filter to watch is 82.82, a low of January 12.

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 Australian Dollar.

  USD EUR GBP CAD AUD JPY NZD CHF
USD   -0.05% -0.04% -0.01% -0.09% -0.01% -0.07% -0.07%
EUR 0.06%   0.01% 0.04% -0.05% 0.05% -0.01% 0.01%
GBP 0.05% -0.01%   0.05% -0.06% 0.03% -0.02% -0.02%
CAD 0.01% -0.05% -0.05%   -0.09% 0.01% -0.06% -0.04%
AUD 0.09% 0.05% 0.05% 0.09%   0.07% 0.05% 0.05%
JPY 0.01% -0.03% -0.04% 0.00% -0.08%   -0.06% -0.04%
NZD 0.07% 0.01% 0.01% 0.08% -0.04% 0.06%   0.01%
CHF 0.06% -0.02% 0.01% 0.05% -0.05% 0.02% 0.00%  

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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