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  • Indian Rupee trades softer on the renewed USD demand on Friday. 
  • RBI’s Das said persistent food price shocks and heightened geopolitical tensions are hindering policymakers’ efforts to curb inflation. 
  • Investors will monitor the US January Producer Price Index (PPI) on Friday.

The Indian rupee (INR) weakens on Friday as the US Dollar (USD) recovers its recent losses. The weaker-than-expected US Retail Sales triggered speculation that the Federal Reserve (Fed) will soon start cutting interest rates in the coming months and might cap the upside of the pair.

The Reserve Bank of India (RBI) Governor Shaktikanta Das said on Thursday that India has successfully navigated multiple challenges and emerged as the fastest-growing major economy. The economy is forecast to grow by at least 7% for the fourth consecutive year. However, persistent shocks to food prices and renewed geopolitical flashpoints are some factors that are now complicating policymakers’ efforts to combat inflation. 

Investors await the US January Producer Price Index (PPI) on Friday. The downbeat report could exert some selling pressure on the Greenback and act as a headwind for the USD/INR pair. Furthermore, Fed officials Barr and Daly will speak later in the day. Next week, investors will take more cues from the Indian S&P Global Services PMI and RBI MPC Meeting Minutes. 

Daily Digest Market Movers: Indian Rupee remains sensitive amid multiple headwinds

  • India’s goods trade deficit narrowed by nearly 12% in January compared to the previous month. The merchandise trade deficit fell to $17.49 billion in January from $19.80 billion in December. 
  • Imports declined to $54.41 billion from $58.25 billion in December. Exports fell marginally to $36.92 billion in January from $38.45 billion in December. The decline in exports is mostly attributable to the armed war in the Red Sea.
  • Foreign portfolio inflows into India are expected to increase to roughly 1% of GDP from 0.4% in the 2014–2022 timeframe, according to the CLSA. 
  • US Retail Sales dropped 0.8% MoM in January from a 0.4% rise in December, worse than the market expectation of a 0.1% decline. Retail Sales Control Group came in at -0.4% MoM versus 0.6% prior.  
  • The New York Empire State Manufacturing Index arrived at -2.4 in February, a big improvement from the previous reading of -43.7. 
  • Federal Reserve Bank of Atlanta President Bostic said the Fed does not face urgency to cut rates given the current economy, and a strong economy argues for patience in adjusting monetary policy.

Technical Analysis: Indian Rupee resumes downside journey within the long-term trading range

Indian Rupee trades on a weaker note on the day. USD/INR remains stuck within a familiar multi-month-old descending trend channel of 82.70–83.20 since December 8, 2023. 

In the near term, USD/INR resumes a bearish outlook as the pair is below the key 100-period Exponential Moving Average (EMA) on the daily timeframe. The 14-day Relative Strength Index which lies below the 50.0 midline also supports the downward momentum for USD/INR. 

On the bright side, the critical resistance level for the pair is seen near the upper boundary of the descending trend channel at 83.20. A bullish breakout above this level could get enough fuel to hit a high of January 2 at 83.35, en route to the 84.00 psychological level. 

In the case of the bearish environment, the first downside target is located near a low of February 2 at 82.83. Further south, the lower limit of the descending trend channel 82.70 acts as a potential support level for the pair, followed by a low of August 23 at 82.45. 

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 Swiss Franc.

  USD EUR GBP CAD AUD JPY NZD CHF
USD   0.14% 0.29% 0.15% -0.38% 0.64% 0.13% 0.85%
EUR -0.15%   0.15% 0.00% -0.53% 0.49% -0.03% 0.70%
GBP -0.30% -0.16%   -0.14% -0.68% 0.35% -0.17% 0.56%
CAD -0.15% 0.00% 0.14%   -0.53% 0.49% -0.02% 0.70%
AUD 0.38% 0.52% 0.67% 0.52%   1.01% 0.49% 1.22%
JPY -0.65% -0.50% -0.33% -0.51% -1.04%   -0.49% 0.22%
NZD -0.12% 0.02% 0.17% 0.02% -0.50% 0.52%   0.72%
CHF -0.86% -0.71% -0.56% -0.71% -1.24% -0.21% -0.73%  

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.

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