USD/INR drifts higher, all eyes are on the Indian WPI inflation, US CPI data
- Indian Rupee loses traction in the Diwali Balipratipada holiday in India.
- India’s Inflation eased in October, closer to the central bank's target of 4%.
- The US Consumer Price Index (CPI) and India’s Wholesale Price Index (WPI) inflation data will be the highlight this week.
Indian Rupee (INR) edges lower on Tuesday as traders avoid taking large positions on the occasion of the Diwali Balipratipada holiday. Inflation in India slowed down for the third consecutive month in October, edging closer to the central bank's medium-term target of 4%. However, the country is particularly vulnerable to higher crude prices as India is the world's third-biggest oil consumer.
Investors will closely monitor the US Consumer Price Index (CPI) data due on Tuesday. The headline CPI is expected to rise by 0.1% MoM in October, while the core CPI is forecasted to climb by 0.3% MoM and 4.1% YoY. Furthermore, India’s Wholesale Price Index (WPI) Inflation YoY will also be released. The volatility in the market might trigger an intervention from the Reserve Bank of India (RBI) to protect the national currency.
Daily Digest Market Movers: Indian Rupee remains vulnerable to global factors
- India’s Consumer Price Index (CPI) rose 4.87% YoY in October from 5.02% in September, above the market expectation of 4.80%.
- The Reserve Bank of India (RBI) has kept the interest rates unchanged for four straight meetings while maintaining a relatively hawkish policy stance to alleviate price pressures.
- RBI Governor Shaktikanta Das said India remains vulnerable to food price shocks, and monetary policy is still influencing inflation towards the 4% target.
- RBI estimates that India's GDP will expand at a 6.3% annual rate in the current fiscal year.
- Controlling food prices and inflation is a top priority for Prime Minister Narendra Modi and his government as the election season gets closer.
- The New York Fed’s survey of consumer expectations showed the 1-year and 5-year inflation outlook eased to 3.57% and 2.72%, respectively.
- The US government reported a $66 billion budget deficit in October, compared to a deficit of $87 billion during the same month of last year.
- The University of Michigan's Consumer Sentiment Index dropped to 60.4 in November versus 63.8 prior, below the market consensus of 63.7.
- The UoM 12-month inflation expectations climbed to 4.4% from 4.2%, while the 5-year expectations rose to 3.2% from 3.0%.
- Fed Chair Jerome Powell reiterated that the Fed will hike rates again if deemed necessary to control inflation.
Technical Analysis: Indian Rupee keeps the bearish outlook unchanged
The Indian Rupee trades soft on the day. The USD/INR pair trades in a familiar range of 83.00–83.35 since September. The USD/INR bullish potential remains intact as the pair holds above the key 100- and 200-day Exponential Moving Averages (EMA) on the daily chart.
The first upside barrier of the pair will emerge near the upper boundary of the trading range of 83.35. Any follow-through buying will pave the way to the year-to-date (YTD) high of 83.47. Further north, the next upside stop to watch is a psychological round figure at 84.00. On the flip side, 83.00 acts as a key contention level. A decisive break below 83.00 will see losses extend to a low of September 12 at 82.82, followed by a low of August 4 at 82.65.
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 Australian Dollar.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF |
| USD | 0.17% | 0.56% | 0.78% | 1.68% | 1.13% | 1.34% | 0.29% |
| EUR | -0.18% | 0.38% | 0.60% | 1.48% | 0.96% | 1.19% | 0.13% |
| GBP | -0.57% | -0.41% | 0.21% | 1.12% | 0.58% | 0.81% | -0.26% |
| CAD | -0.78% | -0.60% | -0.22% | 0.92% | 0.36% | 0.59% | -0.46% |
| AUD | -1.70% | -1.53% | -1.14% | -0.92% | -0.56% | -0.32% | -1.39% |
| JPY | -1.16% | -0.98% | -0.58% | -0.39% | 0.52% | 0.24% | -0.85% |
| NZD | -1.39% | -1.22% | -0.82% | -0.60% | 0.31% | -0.23% | -1.07% |
| CHF | -0.31% | -0.15% | 0.26% | 0.47% | 1.38% | 0.83% | 1.06% |
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
What is the role of the Reserve Bank of India?
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.
How do the decisions of the Reserve Bank of India affect the Rupee?
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.
Does the Reserve Bank of India directly intervene in FX markets?
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 eys levels, and uses derivatives to hedge its positions.
Reprinted from FXStreet_id，the copyright all reserved by the original author.
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