- Indian Rupee loses momentum on the firmer USD, higher crude oil prices.
- India’s retail inflation has eased to a three-month low in January from December’s four-month high of 5.69%.
- India’s Wholesale Price Index (WPI) Food, Fuel, and Inflation for January will be the highlight on Tuesday ahead of US CPI data.
Indian Rupee (INR) weakens on Tuesday amid a stronger US Dollar (USD) and a bounce back in crude oil prices. The Indian economy showed evidence of resilience at the start of the year, with Industrial Production improving and inflation falling, according to data published on Monday.
India’s inflation dropped to a three-month low in January due to the cooling of food prices. The inflation rate has stayed within its tolerance range of 2–6% for the fifth consecutive month. Food inflation came in at 8.30% in January versus 9.53% in December.
The Reserve Bank of India (RBI) Monetary Policy Committee (MPC) maintained its inflation forecast for FY24 at 5.4% at its February meeting, despite concerns on rising food prices and uncertainty around crude oil prices. The Indian central bank further stated that it expects inflation to reach 5% in the current quarter ending March 31.
Looking ahead, India’s Wholesale Price Index (WPI) Food, Fuel, and Inflation for January will be released on Wednesday. On the US front, market players will closely monitor the January CPI report on Tuesday. Later this week, the Retail Sales and Producer Price Index (PPI) for January will be due on Thursday and Friday, respectively.
- India’s Consumer Price Index (CPI) rose 5.10% YoY in January from 5.69% in the previous reading, better than the market expectation of 5.09%.
- Indian Industrial Production for December improved to 3.8% YoY compared to the previous reading and the consensus of 2.4%.
- Indian Manufacturing Output came in at 3.9% MoM in December, versus 1.2% prior.
- India’s foreign exchange reserves rose by USD 5.736 billion to USD 622.469 billion for the week ended February 2, according to the Reserve Bank of India.
- Several Fed officials suggested that they want more time to observe whether inflation continues to decline.
- The US CPI headline inflation is estimated to ease from 3.4% to 2.9% YoY, and the core figure is forecast to drop from 3.9% to 3.7% YoY.
Indian Rupee trades on a weaker note on the day. USD/INR remains stuck within a multi-month descending trend channel of 82.70–83.20.
In the short term, the bearish outlook of USD/INR remains intact, as the pair is below the key 100-period Exponential Moving Average (EMA) on the daily chart. The downward momentum is supported by the 14-day Relative Strength Index, which stands below the 50.0 midline, indicating the sellers are likely to stay in control.
The initial support level of the pair is seen near a low of February 2 at 82.83. Further south, the key contention level will emerge near the lower limit of the descending trend channel at 82.70. A potential bearish breakout below this level could drag the pair lower to a low of August 23 at 82.45, followed by a low of June 1 at 82.25.
On the bright side, the confluence of the upper boundary of the descending trend channel, the psychological round figure, and the 100-period EMA at the 83.00–83.05 regions will be the critical resistance levels to watch. A decisive break above this zone will see a rally to a high of January 18 at 83.20, en route to a high of January 2 at 83.35, and the 84.00 psychological level.
US Dollar price this week
The table below shows the percentage change of US Dollar (USD) against listed major currencies this week. US Dollar was the weakest against the Canadian Dollar.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | 0.32% | 0.19% | 0.03% | 0.15% | 0.24% | 0.81% | 0.27% | |
| EUR | -0.32% | -0.13% | -0.31% | -0.17% | -0.08% | 0.48% | -0.06% | |
| GBP | -0.20% | 0.13% | -0.16% | -0.04% | 0.05% | 0.61% | 0.07% | |
| CAD | -0.01% | 0.31% | 0.18% | 0.13% | 0.23% | 0.79% | 0.25% | |
| AUD | -0.15% | 0.17% | 0.04% | -0.12% | 0.09% | 0.66% | 0.12% | |
| JPY | -0.23% | 0.06% | -0.02% | -0.22% | -0.09% | 0.55% | 0.03% | |
| NZD | -0.81% | -0.49% | -0.62% | -0.80% | -0.67% | -0.57% | -0.55% | |
| CHF | -0.27% | 0.06% | -0.07% | -0.25% | -0.12% | -0.02% | 0.55% |
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 economy FAQs
The Indian economy has averaged a growth rate of 6.13% between 2006 and 2023, which makes it one of the fastest growing in the world. India’s high growth has attracted a lot of foreign investment. This includes Foreign Direct Investment (FDI) into physical projects and Foreign Indirect Investment (FII) by foreign funds into Indian financial markets. The greater the level of investment, the higher the demand for the Rupee (INR). Fluctuations in Dollar-demand from Indian importers also impact INR.
India has to import a great deal of its Oil and gasoline so the price of Oil can have a direct impact on the Rupee. Oil is mostly traded in US Dollars (USD) on international markets so if the price of Oil rises, aggregate demand for USD increases and Indian importers have to sell more Rupees to meet that demand, which is depreciative for the Rupee.
Inflation has a complex effect on the Rupee. Ultimately it indicates an increase in money supply which reduces the Rupee’s overall value. Yet if it rises above the Reserve Bank of India’s (RBI) 4% target, the RBI will raise interest rates to bring it down by reducing credit. Higher interest rates, especially real rates (the difference between interest rates and inflation) strengthen the Rupee. They make India a more profitable place for international investors to park their money. A fall in inflation can be supportive of the Rupee. At the same time lower interest rates can have a depreciatory effect on the Rupee.
India has run a trade deficit for most of its recent history, indicating its imports outweigh its exports. Since the majority of international trade takes place in US Dollars, there are times – due to seasonal demand or order glut – where the high volume of imports leads to significant US Dollar- demand. During these periods the Rupee can weaken as it is heavily sold to meet the demand for Dollars. When markets experience increased volatility, the demand for US Dollars can also shoot up with a similarly negative effect on the Rupee.