The Indian Rupee (INR) ticks up against the US Dollar (USD) at open on Friday. The USD/INR pair edges lower to near 88.85 as the US Dollar extends its downside. Although the Indian Rupee rises marginally against the US Dollar, the former is broadly under pressure and close to its all-time high of 89.10 as the United States (US) and India have yet to reach a trade deal.
To support the Indian Rupee, the RBI has intervened several times since August, when US-India trade tensions stemmed. A Reuters report has shown that the RBI might likely sell US Dollars to anchor the Indian Rupee above its record low.
Amid an absence of a US-India trade deal, overseas investors have been consistently paring their stake in the Indian stock market. On Thursday, Foreign Institutional Investors (FIIs) turned out to be net sellers for the fourth straight trading day, and offloaded shares worth Rs. 383.68 crore.
On the domestic front, India’s Ministry of Commerce and Industry has published Wholesale Price Index (WPI) Inflation data for October. The report showed that inflation at the wholesale level declined at a faster pace of 1.21% on an annualized basis. Economists expected the producer inflation to have dropped by 0.6% after rising 0.13% in September.
Soft producer inflation data would prompt expectations of an interest rate cut by the Reserve Bank of India (RBI) in its monetary policy announcement in December.
This week, the speculation of an RBI interest rate cut in the December meeting had already intensified after the release of the Consumer Price Index (CPI) data for October, which showed that inflationary pressures grew at a moderate pace of 0.25% on an annualized basis.
The table below shows the percentage change of Indian Rupee (INR) against listed major currencies today. Indian Rupee was the strongest against the British Pound.
| USD | EUR | GBP | JPY | CAD | AUD | INR | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | -0.05% | 0.26% | 0.02% | 0.00% | -0.08% | -0.09% | -0.09% | |
| EUR | 0.05% | 0.31% | 0.07% | 0.07% | -0.03% | -0.03% | -0.04% | |
| GBP | -0.26% | -0.31% | -0.24% | -0.25% | -0.34% | -0.34% | -0.36% | |
| JPY | -0.02% | -0.07% | 0.24% | 0.02% | -0.08% | -0.09% | -0.10% | |
| CAD | -0.01% | -0.07% | 0.25% | -0.02% | -0.10% | -0.09% | -0.10% | |
| AUD | 0.08% | 0.03% | 0.34% | 0.08% | 0.10% | 0.00% | -0.02% | |
| INR | 0.09% | 0.03% | 0.34% | 0.09% | 0.09% | -0.01% | -0.00% | |
| CHF | 0.09% | 0.04% | 0.36% | 0.10% | 0.10% | 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 Indian Rupee from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent INR (base)/USD (quote).
Daily digest market movers: Fed dovish bets recede amid upside inflation risks
- A slight downside move in the USD/INR pair is majorly driven by weakness in the US Dollar. At the press time, the US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, trades marginally lower to near 99.15. The USD Index is close to its two-week low of 99.00 posted on Thursday.
- The US Dollar has come under pressure as investors expect the US economic data releases, which were halted due to the government shutdown, would exhibit further weakness in the economy.
- “Starting from next week, we’re going to get a lot of economic data from the U.S., and we think it’s going to be pretty bad. I think that the market is now preparing for the coming deluge of poor U.S. economic data,” analysts at Commonwealth Bank of Australia said, Reuters reported.
- Signs of an economic slowdown in the US economy would prompt expectations of an interest rate cut by the Federal Reserve (Fed) in the December meeting, which were eased on Thursday as a string of policymakers highlighted upside inflation risks.
- According to the CME FedWatch tool, the probability of the Fed cutting interest rates by 25 basis points (bps) to 3.50%-3.75% in the December meeting has diminished to 50.7% from 63% seen on Thursday.
- St. Louis Fed Bank President Alberto Musalem and Cleveland Fed Bank President Beth Hammack called for a cautious monetary policy approach, while stressing the need to address above-target inflation.
- “Employment side of Fed mandate challenged amid job market softening, but the Fed needs to maintain some amount of policy restriction to cool inflation,” Hammack said in a fireside chat at the Economic Club of Pittsburgh on Thursday.
Technical Analysis: USD/INR aims to revisit all-time high near 89.10
USD/INR falls marginally to near 88.85 at open on Friday. However, the near-term trend of the pair remains bullish as it stays above the 20-day Exponential Moving Average (EMA), which trades around 88.69.
The 14-day Relative Strength Index (RSI) strives to return above 60.00. A fresh bullish momentum would emerge if the RSI (14) manages to do so.
Looking down, the August 21 low of 87.07 will act as key support for the pair. On the upside, the all-time high of 89.12 will be a key barrier.
Inflation FAQs
Inflation measures the rise in the price of a representative basket of goods and services. Headline inflation is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core inflation excludes more volatile elements such as food and fuel which can fluctuate because of geopolitical and seasonal factors. Core inflation is the figure economists focus on and is the level targeted by central banks, which are mandated to keep inflation at a manageable level, usually around 2%.
The Consumer Price Index (CPI) measures the change in prices of a basket of goods and services over a period of time. It is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core CPI is the figure targeted by central banks as it excludes volatile food and fuel inputs. When Core CPI rises above 2% it usually results in higher interest rates and vice versa when it falls below 2%. Since higher interest rates are positive for a currency, higher inflation usually results in a stronger currency. The opposite is true when inflation falls.
Although it may seem counter-intuitive, high inflation in a country pushes up the value of its currency and vice versa for lower inflation. This is because the central bank will normally raise interest rates to combat the higher inflation, which attract more global capital inflows from investors looking for a lucrative place to park their money.
Formerly, Gold was the asset investors turned to in times of high inflation because it preserved its value, and whilst investors will often still buy Gold for its safe-haven properties in times of extreme market turmoil, this is not the case most of the time. This is because when inflation is high, central banks will put up interest rates to combat it.
Higher interest rates are negative for Gold because they increase the opportunity-cost of holding Gold vis-a-vis an interest-bearing asset or placing the money in a cash deposit account. On the flipside, lower inflation tends to be positive for Gold as it brings interest rates down, making the bright metal a more viable investment alternative.