USD/INR extends its upside following Indian WPI data

  • February 14, 2024

  • Indian Rupee trades soft as the higher-than-expected US inflation data boosts the US Dollar. 
  • The hawkish stance of the Reserve Bank of India (RBI) might cap the INR’s downside for the time being. 
  • Indian Wholesale Price Index (WPI) Inflation eased to 0.27% YoY in January from 0.73% in the previous reading, worse than expected.

Indian Rupee (INR) loses traction on Wednesday amid the firmer US Dollar (USD). The uptick of the pair is supported by stronger-than-expected US inflation data, which prompts investors to further push back expectations on when the Federal Reserve (Fed) will cut its interest rate. 

Meanwhile, the Reserve Bank of India (RBI) stated that it desires to see inflation return to 4%, the midpoint of the 2-6% target. The markets anticipate the Indian central bank to maintain a hawkish stance in the near term and not cut rates ahead of the Fed. This, in turn, could provide some support to the INR and act as a headwind for the USD/INR pair. 

Fed’s Goolsbee and Barr are set to speak about the inflation and interest rate outlook later on Wednesday. The Retail Sales and Producer Price Index (PPI) for January will be released later this week on Thursday and Friday, respectively. 

Daily Digest Market Movers: Indian Rupee remains fragile on the back of renewed US Dollar demand 

  • India’s Wholesale Price Index (WPI) Inflation eased to 0.27% YoY in January from 0.73% in the previous reading, below the market consensus of 0.53%.
  • India’s Wholesale Price Index (WPI) Food came in at 6.85% versus 9.38% prior. 
  • The Indian Retail Inflation declined to a three-month low of 5.1% in January from 5.69% in December, above the consensus of 5.09%, according to the Ministry of Statistics & Programme Implementation. 
  • India needs to grow at 7%–8% annually in order to become a developed nation with USD 13,000 per capita income by 2047, former RBI Governor C. Rangarajan said on Tuesday.
  • Union Minister, Hardeep Singh Puri, praised India’s economic growth, citing a robust expansion of 2.6% in the last three quarters.  
  • The US Consumer Price Index (CPI) inflation softened to 3.1% YoY in January from 3.4% in December, beating the market expectation of 2.9%. On a monthly basis, the headline CPI rose 0.3% MoM from 0.2% in the previous reading. 
  • The Core CPI, which excludes volatile food and energy prices, climbed 3.9% YoY in the same period, above the market consensus of 3.7%. The monthly Core CPI rose 0.4% MoM in January from a 0.3% rise in December. 
  • Atlanta Fed President Raphael Bostic said that the US inflation rate will fall to “the lower twos” by the end of this year, down from 3.4% in December.

Technical Analysis: Indian Rupee weakens further against the US Dollar

Indian Rupee trades in negative territory on the day. USD/INR remains range-bound within a descending trend channel of 82.70–83.20 since December 8, 2023. 

In the short term, USD/INR resumes its uptrend as the pair returns above the key 100-period Exponential Moving Average (EMA) on the daily timeframe. The bullish momentum is also supported by the 14-day Relative Strength Index, which lies above the 50.0 midline, hinting that further upside looks favorable. 

Sustained bullish momentum above the upper boundary of the descending trend channel at 83.20 might make its way back to the next upside barrier at 83.35 (high of January 2), en route to the 84.00 psychological level. 

The resistance-turned-support level at 83.00 will be the first downside target to watch for USD/INR. The next contention level is seen at a low of February 2 at 82.83. Any follow-through selling below this level could set off a drop to the next potential support near the lower limit of the descending trend channel at 82.70, followed by 82.45 (low of August 23). 

US Dollar price today

The table below shows the percentage change of US Dollar (USD) against listed major currencies today. US Dollar was the strongest against the Euro.

USD   -0.06% -0.13% -0.10% -0.33% -0.15% -0.41% -0.19%
EUR 0.07%   -0.06% -0.02% -0.26% -0.08% -0.33% -0.12%
GBP 0.13% 0.06%   0.04% -0.19% -0.03% -0.27% -0.06%
CAD 0.10% 0.02% -0.04%   -0.23% -0.05% -0.31% -0.11%
AUD 0.32% 0.26% 0.20% 0.23%   0.17% -0.07% 0.13%
JPY 0.15% 0.06% 0.02% 0.07% -0.17%   -0.25% -0.03%
NZD 0.40% 0.33% 0.27% 0.30% 0.08% 0.25%   0.23%
CHF 0.20% 0.13% 0.08% 0.11% -0.11% 0.06% -0.19%  

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).

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.

Source: https://www.fxstreet.com/news/usd-inr-extends-its-upside-eyes-on-indian-wpi-data-202402140354

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