USD/INR gains traction ahead of US ADP report

  • Indian Rupee trades weaker amid the firmer USD.
  • Goldman Sachs predicts a positive trajectory for the Indian economy in 2024.
  • Investors await the US ADP Employment Change and Initial weekly Jobless Claims, due later on Thursday.

Indian Rupee (INR) continues to trade on a softer note on Thursday amid the stronger US Dollar (USD) broadly. Goldman Sachs Chief India Economist Santanu Sengupta said that India’s positive perspective is fuelled by expectations of substantial foreign capital inflows, especially as the Reserve Bank of India (RBI) continues to accumulate inflows and build currency reserves at every possible opportunity.

In 2023, the Indian economy expanded at 6.5%, outperforming most major countries. However, given the global economic picture, the road ahead may be challenging. Furthermore, the Indian election in mid-2024 will be closely watched as it could impact investors’ sentiment.

Later on Thursday, the US ADP Employment Change and Initial weekly Jobless Claims will be released. The spotlight this week will be the US employment data, including the highly anticipated US Nonfarm Payrolls (NFP). December’s NFP figure is expected to show an increase of 170K, compared to 199K in November.

Daily Digest Market Movers: Indian Rupee maintains a bullish path amid the multiple headwinds

  • India’s foreign exchange reserves grew by $4.47 billion to $620.44 billion in the week ended December 23, 2023, the highest level in 21 months.
  • The Indian S&P Global Manufacturing PMI for December arrived at 54.0 versus 56.0 prior, below the market consensus of 55.9.
  • Economists at Citi forecast a modest 50 basis points (bps) drop in the GDP growth rate for India in the fiscal year 2025.
  • US ISM Manufacturing PMI for December rose to 47.4 from 46.7 in the previous reading, above the market consensus of 47.1.
  • The minutes of the FOMC meeting in December stated that participants believe the policy rate to be at or near its peak for this tightening cycle, but the actual policy path would depend on how the economy evolves.
  • Richmond Fed President Thomas Barkin said that interest rate hikes remain on the table despite progress in inflation control.
  • US S&P Global Manufacturing PMI eased to 47.9 in December from 48.2 in November, weaker than expectations.

Technical Analysis: Indian Rupee sticks to the longer-term range since September

Indian Rupee extends its downside on the day. The USD/INR pair remains stuck in a multi-month-old trading range of 82.80–83.40. According to the daily chart, the further upside looks favorable as the pair holds above the key 100-period Exponential Moving Average (EMA). Furthermore, the 14-day Relative Strength Index (RSI) is above the 50.0 midpoint, supporting the upward momentum.

The first resistance level for USD/INR will emerge at the upper boundary of the trading range at 83.40. A decisive break above 83.40 will open the door to a 2023 high of 83.47, then the psychological figure at 84.00. On the other hand, 83.00 acts as an initial support level for the pair. The additional downside filter to watch is the confluence of the lower limit of the trading range and a low of September 12 at 82.80, and finally near a low of August 11 at 82.60.

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 Japanese Yen.

USD -0.03%0.02%-0.08%-0.14%0.51%-0.24%-0.01%
EUR0.05% 0.06%-0.03%-0.10%0.56%-0.19%0.04%
GBP-0.02%-0.06% -0.10%-0.15%0.52%-0.24%-0.03%
CAD0.07%0.04%0.09% -0.07%0.59%-0.17%0.10%
AUD0.14%0.11%0.16%0.07% 0.66%-0.10%0.12%
JPY-0.54%-0.58%-0.55%-0.61%-0.68% -0.77%-0.56%
NZD0.22%0.21%0.24%0.15%0.08%0.77% 0.21%
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).


What is the role of the Reserve Bank of India?

The role of the Reserve Bank of India (RBI), in its own words, is “ 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 key levels, and uses derivatives to hedge its positions.

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