Market Data 
- The Indian Rupee edges lower in Friday’s Asian session.
- Indian foreign outflows, rising crude oil prices weigh on the INR; likely RBI’s intervention might cap its downside.
- The US PPI and preliminary reading of the Michigan Consumer Sentiment Index data will be the highlights on Friday.
The Indian Rupee (INR) weakens on Friday amid the firmer US Dollar (USD). Furthermore, sustained Indian foreign fund outflows and elevated crude oil prices continue to undermine the local currency. The hotter-than-expected US inflation data and hawkish comments by Federal Reserve (Fed) officials lift the Greenback and also contribute to the INR’s downside.
Nonetheless, the possible foreign exchange intervention from the Reserve Bank of India (RBI) helps limit the INR’s losses. Looking ahead, market players will shift their attention to the US Producer Price Index (PPI) for September, along with the preliminary reading of the Michigan Consumer Sentiment Index for October. On the Indian docket, the Industrial Production and Manufacturing Output will be released on Friday.
Daily Digest Market Movers: Indian Rupee remains weak amid multiple headwinds
- FTSE Russell said on Tuesday that Indian sovereign bonds will be added to its Emerging Markets Government Bond Index (EMGBI), following a similar move by JP Morgan and Bloomberg Index Services.
- The US Consumer Price Index (CPI) for September rose by 2.4% YoY, compared to 2.5% in August, exceeding estimates of 2.3%. Core CPI climbed by 3.3% YoY in September, surpassing forecasts and August’s 3.2%.
- New York Fed President John C. Williams said on Thursday that the monetary policy will continue to shift towards a more neutral stance in the coming months, aligning with ongoing progress toward price stability.
- Chicago Fed President Austan Goolsbee noted on Thursday that he was not overly concerned with a higher-than-expected September inflation report and stuck by his view that the Fed has moved past its singular focus on price pressures.
- Atlanta Fed President Raphael Bostic stated that the Fed could stand pat at an upcoming policy meeting if the data warrants. “I am totally comfortable with skipping a meeting if the data suggests that’s appropriate,” said Bostic.
Technical Analysis: USD/INR maintains the bullish trend in the longer term
The Indian Rupee trades on a softer note on the day. The constructive outlook of the USD/INR pair remains in play as the pair holds above the descending trend line and the key 100-day Exponential Moving Average (EMA) on the daily timeframe. The upward momentum is supported by the 14-day Relative Strength Index (RSI), which stands above the midline near 59.15, supporting the buyers in the near term.
The 84.00 psychological level acts as a key resistance level for USD/INR. A decisive break above this level could lead the way to the all-time high of 84.15, en route to 84.50.
On the downside, the initial support level emerges near the resistance-turned-support level at 83.90. The next contention level is located around the 100-day EMA at 83.68. The additional downside filter to watch is 83.00, representing the round mark and the low of May 24.
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.
