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    ​​USD/INR flat-lines ahead of RBI Minutes, US PMI data

    Source Fxstreet
    Feb 22, 2024 02:58
    • Indian Rupee trades flat on the mild losses of the US Dollar.
    • Indian inflation expectations may edge down, but renewed pressures from cereals and proteins cannot be ruled out, RBI bulletin said. 
    • India’s S&P Global Services PMI, RBI MPC Meeting Minutes, and US S&P Global PMI report will be due on Thursday. 

    Indian Rupee (INR) trades on a flat note on Thursday amid the modest decline of the Greenback. According to the RBI February bulletin, while inflation expectations in India may stabilize and edge down, renewed pressures from cereals and proteins remain a possibility. Retail inflation in January eased to a three-month low of 5.1% from 5.69% in December. The Reserve Bank of India (RBI) maintained interest rates and its policy stance unchanged while reiterating its commitment to meeting the 4% inflation target on a sustainable basis.  

    Meanwhile, a rise in oil prices amid the concerns over attacks on ships in the Red Sea and growing expectations that cuts to U.S. interest rates will take longer than thought might lift the safe-haven US Dollar (USD) and cap the downside of the USD/INR pair. 

    Investors will take more cues from India’s S&P Global Services PMI and RBI MPC Meeting Minutes on Thursday. On the US docket, the S&P Global PMI, weekly Initial Jobless Claims, Existing Home Sales, and the Chicago Fed National Activity Index will be due. Also, the Fed’s Cook, Kashkari, Jefferson, and Harker are scheduled to speak later in the day.  

    Daily Digest Market Movers: Indian Rupee remains sensitive to the high inflation and geopolitical risks

    • The Indian economy continues to sustain the momentum achieved in the first half of 2023-24, according to the Reserve Bank of India's (RBI) monthly bulletin. 
    • The bond issuance since January is almost half the $3.3 billion issued in all of 2023. Traders have bought around 350 billion rupees ($4.22 billion) of bonds on a net basis so far in 2024 after purchases in 2023 jumped to a six-year high. 
    • The RBI expects India's debt-to-GDP ratio to decrease to 73.4% by 2030-31, a notable improvement from the IMF's forecast of 78.2%. 
    • The FOMC Minutes indicate that no rate cuts would be coming until the rate-setting FOMC held “greater confidence” that inflation was receding.
    • Fed officials noted that they wanted to see more before starting to ease policy while saying that rate hikes are likely over. Members cited the risks of moving too quickly on cuts.
    • The US Services PMI is expected to slightly ease to 52.0 in February from 52.5 in January, while the Manufacturing PMI is forecast to drop to 50.5 versus 50.7 prior. 

    Technical Analysis: Indian Rupee remains capped within the longer-term band of 82.70-83.20

    Indian Rupee trades flat on the day. USD/INR remains confined within a multi-month-old descending trend channel between 82.70 and 83.20 since December 8, 2023. 

    In the near-term, USD/INR maintains its bearish bias as the pair is below the key 100-day Exponential Moving Average (EMA) on the daily chart. The downward momentum is supported by the 14-day Relative Strength Index (RSI) lies below the 50.0 midline, signaling the path of least resistance is to the downside.

    USD/INR has found an initial support level around a low of February 20 at 82.85. The potential contention level will emerge near the lower limit of the descending trend channel at 82.70. A bearish breakout below this level will see a drop to a low of August 23 at 82.45. 

    On the upside, a decisive break above the support-turned-resistance near the 83.00 mark could lead USD/INR heading back to the upper boundary of the descending trend channel at 83.20. Further north, the next upside filter to watch is a high of January 2 at 83.35, followed by the 84.00 psychological level. 

    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 Japanese Yen.

    USD   -0.05% 0.01% -0.09% 0.02% 0.02% -0.11% -0.05%
    EUR 0.05%   0.05% -0.06% 0.07% 0.07% -0.05% 0.00%
    GBP 0.00% -0.04%   -0.10% 0.03% 0.03% -0.09% -0.03%
    CAD 0.08% 0.07% 0.09%   0.13% 0.14% -0.03% 0.07%
    AUD -0.02% -0.06% -0.02% -0.12%   0.03% -0.15% -0.06%
    JPY -0.03% -0.09% -0.06% -0.13% -0.03%   -0.21% -0.07%
    NZD 0.11% 0.07% 0.10% -0.01% 0.12% 0.13%   0.06%
    CHF 0.05% -0.01% 0.03% -0.07% 0.05% 0.08% -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

    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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