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    USD/INR flat-lines ahead of Fed rate decision, India’s Interim Budget 2024

    Source Fxstreet
    Jan 30, 2024 04:03
    • Indian Rupee trades around a flat line amid a modest decline in the US Dollar.
    • The Indian Rupee took the lead to become the top-performing currency in the Asian markets for January 2024.
    • The Federal Open Market Committee's (FOMC) policy meeting and India’s Interim Budget 2024 are the highlights for this week.

    Indian Rupee (INR) trades flat with a mild positive bias on Tuesday. The Indian Rupee regains its ground against the US Dollar on the back of foreign portfolio inflows, becoming the top-performing currency in the Asian markets for January 2024. According to a review by a finance ministry, the Indian economy remains resilient amid global challenges due to robust domestic demand, investment-led strategies, and macroeconomic stability.

    The Finance Ministry stated that India is on track to become the world's third-largest economy, with a projected Gross Domestic Product (GDP) of $5 trillion over the next three years. Nonetheless, the external risks from sticky inflation, sluggish growth, and fiscal pressures in the global economy, combined with the ongoing tension around the Red Sea could be a potential threat.

    Moving on, investors will closely monitor the Federal Open Market Committee (FOMC) January meeting on Wednesday, which is widely expected to keep its key interest rates steady for the fourth time in a row. The attention will shift to India’s Interim Budget 2024 for fiscal year 2024–25 on Thursday.

    Daily Digest Market Movers: Indian Rupee remains resilient to global headwinds

    • The Indian Rupee becomes the top-performing currency in the Asian markets for January 2024, appreciated by 1% to 2%.
    • As of January 29, India’s GDP was estimated to be $3.7 trillion, marking significant growth from its position as the tenth biggest economy a decade ago, with a GDP of $1.9 trillion.
    • The stability of INR was attributed to the Reserve Bank of India’s (RBI) timely intervention in the FX market, both by selling and buying Dollars.
    • India's Fiscal Budget 2024–25 is anticipated to lower the fiscal deficit as a percentage of GDP to 5.30% in 2024–25 from 5.90% in the current fiscal year.
    • The Indian government plans to boost welfare spending and lower the budget deficit to 4.5% of GDP by fiscal year 2025–26.
    • US Dallas Fed Manufacturing Business Index for January came in at -27.4 versus -10.4 prior, its lowest level since May.
    • The US Core Personal Consumption Expenditures Price Index (Core PCE) for December, the Fed’s favorite inflation gauge, grew by 0.2% MoM from 0.1% in the previous reading.
    • On an annual basis, the Core PCE figure increased by 2.9% YoY from the previous reading of 3.2%.
    • According to CME Group's FedWatch tool, the sentiment among traders has evolved, with 42% now anticipating a 25 basis points (bps) rate cut by the US Federal Reserve in March.

    Technical Analysis: Indian Rupee continues to consolidate in the 82.78 and 83.45 range

    Indian Rupee trades on a flat note on the day. The USD/INR pair remains confined in a two-month-old descending trend channel between 82.78 and 83.45. According to the daily chart, the potential upside of USD/INR looks favorable as the pair is above the key 100-period Exponential Moving Average (EMA). However, the 14-day Relative Strength Index (RSI) hovers around the 50.0 midline, indicating the directionlessness of the pair.

    The upper boundary of the descending trend channel at 83.25 acts as the first upside barrier for the pair. A decisive break above 83.25 could put a trip back to a high of January 2 at 83.35, followed by a 2023 high of 83.47. On the downside, a clear breakout below the confluence of the 100-period EMA and a psychological level at the 83.00–83.05 zone will put a move to a low of December 18 at 82.90 on the table. Any follow-through selling will drag USD/INR lower to the lower limit of the descending trend channel at 82.72.

    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 .

      USD EUR GBP CAD AUD JPY NZD CHF
    USD   0.02% 0.03% -0.03% 0.06% -0.04% -0.02% 0.06%
    EUR -0.02%   0.00% -0.04% 0.04% -0.06% -0.03% 0.03%
    GBP -0.03% -0.01%   -0.06% 0.04% -0.07% -0.05% 0.03%
    CAD 0.03% 0.07% 0.06%   0.09% -0.01% 0.01% 0.09%
    AUD -0.07% -0.04% -0.03% -0.10%   -0.10% -0.08% -0.01%
    JPY 0.03% 0.08% 0.07% 0.01% 0.05%   0.05% 0.09%
    NZD 0.01% 0.04% 0.04% -0.01% 0.08% -0.02%   0.07%
    CHF -0.05% -0.03% -0.02% -0.07% 0.02% -0.08% -0.04%  

    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

    What are the key factors driving the Indian Rupee?

    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.

    How do the decisions of the Reserve Bank of India impact the Indian 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.

    What macroeconomic factors influence the value of the Indian Rupee?

    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.

    How does inflation impact the Indian 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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