- The Indian Rupee trades softer in Monday’s early Eueopan session.
- Foreign equity inflows drag the INR lower, but lower crude oil prices and likely RBI intervention could cap its downside.
- Investors brace for India’s October CPI inflation report, which is due on Tuesday.
The Indian Rupee (INR) edges lower to an all-time low on Monday. The local currency remains vulnerable amid the sustained outflows from local stocks and expectations of a stronger Greenback and higher US bond yields after Donald Trump won the US election.
On the other hand, the decline in crude oil prices might help limit the INR’s losses as India is the world’s third-largest oil consumer. Additionally, the routine intervention by the Reserve Bank of India (RBI) to sell USD might prevent the INR from significant depreciation in the near term. Traders will keep an eye on India’s October Consumer Price Index (CPI), which is due on Tuesday. On the US docket, the CPI inflation report will be released on Wednesday.
Daily Digest Market Movers: Indian Rupee trades weaker amid multiple headwinds
- Foreign investors have withdrawn more than $1.5 billion from Indian equities so far in November, adding to the $11 billion outflow in October.
- “The pace of foreign equity outflows remains the primary factor determining the trajectory of the USD/INR. However, it is still premature to expect foreign equity outflows from India to end,” noted Societe Generale.
- The Indian CPI inflation is expected to rise to 5.80% YoY in October from 5.49% in September.
- The preliminary University of Michigan’s Consumer Sentiment Index improved to 73.0 in November from 70.5 in October, better than the market expectation of 71.0. This figure is the highest in seven months.
- Minneapolis Fed President Neel Kashkari said the US economy has remained remarkably strong as the Fed progressed in beating back inflation, but the US central bank was still “not all the way home,” per Bloomberg.
Technical Analysis: USD/INR’s constructive outlook remains in place, eyes on overbought RSI
The Indian Rupee trades on a soft note on the day. The bullish outlook of the USD/INR pair remains in play, with the pair holding above the key 100-day Exponential Moving Average (EMA) on the daily timeframe. However, additional consolidation should not be ruled out before positioning for any short-term USD/INR appreciation as the 14-day Relative Strength Index (RSI) is over the midline near 77.75, indicating an overbought condition.
A sustained buying momentum could take USD/INR to the next upside barrier at 84.50. Further north, the next hurdle emerges at the 85.00 psychological level.
On the downside, a move below the lower limit of the trend channel and the high of October 11 in the 84.05-84.10 zone could pave the way for a selloff to 83.83, the 100-day EMA. The additional downside level to watch is 83.46, the low of September 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.
