- The Indian Rupee weakens in Thursday’s early European session.
- Higher crude oil prices weigh on the INR; rising US rate cut bets and Fed’s dovish view might cap the downside.
- Investors await the US weekly Initial Jobless Claims and Philly Fed Manufacturing Index, which are due on Thursday.
The Indian Rupee (INR) attracts some sellers on Thursday despite the weaker US Dollar (USD). The extended recovery in crude oil prices exerts some pressure on the INR as India is the world’s third-largest oil consumer. However, the downside for the local currency might be limited as rising odds of a September rate cut by the US Federal Reserve (Fed) could weigh on the Greenback and pressure US bond yields to come down.
Later on Thursday, investors will monitor the weekly Initial Jobless Claims and the Philly Fed Manufacturing Index. Also, the Fed’s Lorie Logan is scheduled to speak. The dovish comments from the Fed officials might continue to undermine the USD in the near term.
Daily Digest Market Movers: Indian Rupee extends downside amid global factors
- The International Monetary Fund (IMF) on Tuesday raised its economic forecasts this year for China, India, and Europe. India’s economy is estimated to grow 7% from the 6.8% the IMF had projected in April, owing to stronger consumer spending in rural areas.
- Fed Governor Christopher Waller said on Wednesday that the US central bank is ‘getting closer’ to an interest rate cut as inflation’s improved trajectory and a labor market in better balance.
- Richmond Fed President Thomas Barkin said he is “very encouraged” that easing in inflation has begun to broaden and he would like to see it continue.
- The US Building Permits increased by 3.4% to 1.446 million in June from 1.399 million in May, while Housing Starts for the same period rose by 3.0% to 1.353 million from 1.314 million.
- US Industrial Production climbed 0.6% MoM in June from the previous reading of 1.0%, beating the estimation of a 0.3% increase.
Technical analysis: USD/INR remains in consolidative mode in the near term
The Indian Rupee trades on a softer note on the day. The trend of the USD/INR pair appears to be bullish as the pair makes higher highs and higher lows. Additionally, USD/INR holds above the key 100-day Exponential Moving Average (EMA) on the daily chart. The 14-day Relative Strength Index (RSI) points higher above 57.35, suggesting that further upside could be on the horizon.
In the shorter term, the pair has remained confined within its month-long trading range since March 21.
A decisive break above the upper boundary of the trading range at 83.65 will pave the way to the all-time high of 83.75. Further north, the next hurdle to watch is the 84.00 psychological level.
On the other hand, the initial downside target will emerge near the 100-day EMA at 83.38. Extended losses will see a drop to the lower limit of the trading range and round figure at 83.00, followed by 82.82, a low of January 12.
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 Canadian Dollar.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | -0.95% | -1.20% | 0.44% | 0.18% | -3.43% | 0.20% | -1.72% | |
| EUR | 0.95% | -0.25% | 1.38% | 1.13% | -2.46% | 1.15% | -0.76% | |
| GBP | 1.19% | 0.25% | 1.64% | 1.39% | -2.19% | 1.39% | -0.49% | |
| CAD | -0.45% | -1.40% | -1.66% | -0.24% | -3.89% | -0.23% | -2.14% | |
| AUD | -0.18% | -1.15% | -1.41% | 0.25% | -3.63% | 0.00% | -1.90% | |
| JPY | 3.31% | 2.41% | 2.14% | 3.74% | 3.50% | 3.50% | 1.67% | |
| NZD | -0.20% | -1.16% | -1.42% | 0.23% | -0.02% | -3.64% | -1.91% | |
| CHF | 1.66% | 0.73% | 0.48% | 2.10% | 1.88% | -1.72% | 1.86% |
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.
