- Indian Rupee edges lower on the modest recovery of the US Dollar.
- The Indian economy is forecast to expand by 7.3% in the current fiscal year.
- The flash US Gross Domestic Product growth numbers (Q4) are due later on Thursday.
Indian Rupee (INR) loses ground on Thursday amid renewed US Dollar (USD) demand. According to the National Statistical Office’s first advance estimates of national income released in early January, the Indian economy is expected to expand at 7.3% in the current fiscal year, exceeding even experts’ most optimistic expectations. Nonetheless, concerns about rising inflation and higher crude oil prices due to the ongoing geopolitical tensions in the Middle East might cap the INR’s upside in the near term.
Investors will take more cues from the US economic data that could further impact rate-cut expectations in the United States. The preliminary US Gross Domestic Product Annualized (Q4) will be released on Thursday, which is estimated to expand by 2.0%.
Indian markets will be closed on Friday for Republic Day. Attention will shift to the release of the US Core Personal Consumption Expenditures Price Index (Core PCE) for December. Additionally, India’s interim budget for fiscal year 2024–25 (FY25) will be published on February 1.
Daily Digest Market Movers: Indian Rupee remains sensitive to higher food inflation and oil prices
- Foreign investors have sold roughly $2 billion worth of Indian equities in January, following net buys of $7.9 billion the previous month.
- Reserve Bank of India Governor Shaktikanta Das said last week that monetary policy must remain actively disinflationary, despite the recent sharp fall in core inflation.
- India’s core inflation dropped to its lowest level in four years in December, raising the possibility that the rate-setting panel may adjust its position to “neutral” next month.
- The RBI is expected to target a narrower FY25 fiscal deficit of 5.3%–5.6% of GDP versus 5.9% in FY24.
- The US S&P Global Composite PMI for January signaled the fastest rise in business activity since June 2023, arriving at 52.3 versus 50.9 prior, beating the market expectations.
- The US S&P Global Services PMI rose to 52.9 in January from 51.4 in December. The manufacturing figure grew to 50.3 from 47.9 in the previous reading.
- Former St. Louis Federal Reserve (Fed) President James Bullard said on Tuesday that the central bank may begin cutting interest rates before inflation hits 2%, potentially as soon as March.
Technical Analysis: Indian Rupee remains confined in the 82.80–83.40 region
Indian Rupee weakens on the day. The USD/INR pair has remained stuck within the 82.80–83.40 trading range since September 2023. USD/INR resumes its upside as the pair holds above the key 100-period Exponential Moving Average (EMA) on the daily chart. However, the 14-day Relative Strength Index (RSI) hovers around the 50.0 midline, suggesting the directionlessness of the pair for the time being.
The first upside barrier for USD/INR is seen at 83.40 (the upper boundary of the trading range). The next hurdle will emerge at 83.47 (2023 high) and 84.00 (round figure). On the other hand, the initial support level is seen at the 83.00 psychological mark. The next contention level is located at 82.80 (lower limit of the trading range, low of January 15) and 82.60 (low of August 11).
US Dollar price in the last 7 days
The table below shows the percentage change of US Dollar (USD) against listed major currencies in the last 7 days. US Dollar was the strongest against the Canadian Dollar.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | 0.07% | -0.27% | 0.15% | -0.37% | -0.23% | 0.10% | 0.00% | |
| EUR | -0.07% | -0.34% | 0.09% | -0.43% | -0.29% | 0.04% | -0.06% | |
| GBP | 0.26% | 0.34% | 0.41% | -0.10% | 0.04% | 0.36% | 0.27% | |
| CAD | -0.15% | -0.08% | -0.41% | -0.51% | -0.38% | -0.05% | -0.14% | |
| AUD | 0.37% | 0.43% | 0.10% | 0.51% | 0.13% | 0.47% | 0.36% | |
| JPY | 0.22% | 0.31% | -0.06% | 0.36% | -0.15% | 0.32% | 0.23% | |
| NZD | -0.09% | -0.05% | -0.38% | 0.04% | -0.47% | -0.35% | -0.11% | |
| CHF | 0.01% | 0.08% | -0.26% | 0.15% | -0.35% | -0.23% | 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).
RBI FAQs
The role of the Reserve Bank of India (RBI), in its own words, is “..to maintain price stability while keeping in mind the objective of growth.” This involves maintaining the inflation rate at a stable 4% level primarily using the tool of interest rates. The RBI also maintains the exchange rate at a level that will not cause excess volatility and problems for exporters and importers, since India’s economy is heavily reliant on foreign trade, especially Oil.
The RBI formally meets at six bi-monthly meetings a year to discuss its monetary policy and, if necessary, adjust interest rates. When inflation is too high (above its 4% target), the RBI will normally raise interest rates to deter borrowing and spending, which can support the Rupee (INR). If inflation falls too far below target, the RBI might cut rates to encourage more lending, which can be negative for INR.
Due to the importance of trade to the economy, the Reserve Bank of India (RBI) actively intervenes in FX markets to maintain the exchange rate within a limited range. It does this to ensure Indian importers and exporters are not exposed to unnecessary currency risk during periods of FX volatility. The RBI buys and sells Rupees in the spot market at key levels, and uses derivatives to hedge its positions.
