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    USD/INR drifts higher ahead of Indian GDP, US PCE data

    Source Fxstreet
    Feb 29, 2024 03:02
    • Indian Rupee trades softer on the rising month-end demand of USD. 
    • India’s GDP for October-December 2023 is expected to slow to 6.5% from 7.6% in the previous quarter.
    • The US January Core PCE and Indian GDP growth numbers will be the highlights on Thursday. 

    Indian Rupee (INR) trades in negative territory on Thursday amid increased month-end demand for the US Dollar (USD). Some traders speculate that the Reserve Bank of India (RBI) might be actively acquiring Dollars in recent sessions, which might limit the pair in a tight range. However, robust economic fundamentals, the pullback in oil prices, and moderation in domestic inflation might provide some support to the INR. 

    The Statistics Ministry will release India’s GDP data for October-December 2023 on Thursday, which is estimated to slow down to 6.5% from 7.6% in the previous quarter. If the report shows a stronger-than-estimated outcome, this could boost the Indian Rupee and weigh on the USD/INR pair. 

    The US Core Personal Consumption Expenditures Index (Core PCE) for January, the Fed's preferred inflation measure, will be in the spotlight on Thursday. Additionally, US Personal Income, Personal Spending, Pending Home Sales, and the weekly Initial Jobless Claims are also due later in the day. On the Indian docket, the GDP quarterly for Q3 and GDP annual growth numbers on Thursday could provide fresh catalysts for the USD/INR pair. 

    Daily Digest Market Movers: Indian Rupee weakens amid uncertainties and global factors

    • The RBI estimated Indian GDP to grow at 6.5% for October-December 2023, while the ICRA predicted 6%.
    • Indian GDP expanded by 7.6% in the July-September quarter (Q2) of FY 24 and 4.5% in Q3 of FY 23. 
    • The US Gross Domestic Product (GDP) for the fourth quarter grew at a 3.2% annualized rate from a 3.3% in the previous reading, weaker than the estimation of a 3.3% expansion.
    • The New York Federal Reserve (Fed) President John Williams said that even though there's still some distance to cover in achieving the Fed 2% inflation target, the door is opening to interest rate cuts this year, depending on how the data come in. 
    • Investors have priced in 80 basis points (bps) of rate cuts this year, lower than 175 bps priced in around mid-January.

    Technical Analysis: Indian Rupee remains within the longer-term range between 82.70 and 83.20

    Indian Rupee edges lower on the day. USD/INR remains contained within a multi-month-old descending trend channel of 82.70–83.20 since December 8, 2023. 

    USD/INR maintains a bearish outlook in the near term as the pair is still below the 100-day Exponential Moving Average on the daily timeframe. Additionally, the downward momentum is supported by the 14-day Relative Strength Index (RSI), which holds in the negative zone below the 50.0 midline. 

    The lower limit of the descending trend channel at 82.70 will be the first downside target for the pair. A decisive break below this level could expose a low of August 23 at 82.45, followed by a low of June 1 at 82.25.

    On the other hand, the confluence of a psychological round mark and the 100-day EMA at 83.00 will be the potential resistance level for USD/INR. The additional upside filter to watch is the upper boundary of the descending trend channel at 83.20. A break above the mentioned level would have an opportunity to fire up their bullish momentum. USD/INR could get enough fuel to hit a high of January 2 at 83.35, and finally at 84.00. 

    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   0.02% -0.06% -0.05% -0.28% -0.54% -0.16% -0.07%
    EUR -0.03%   -0.05% -0.06% -0.29% -0.58% -0.18% -0.09%
    GBP 0.06% 0.08%   0.02% -0.23% -0.51% -0.11% -0.01%
    CAD 0.04% 0.08% -0.02%   -0.24% -0.53% -0.12% -0.03%
    AUD 0.29% 0.31% 0.23% 0.24%   -0.25% 0.14% 0.21%
    JPY 0.54% 0.57% 0.49% 0.49% 0.27%   0.41% 0.50%
    NZD 0.15% 0.19% 0.11% 0.13% -0.11% -0.41%   0.11%
    CHF 0.08% 0.10% 0.00% 0.01% -0.21% -0.47% -0.08%  

    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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