USD/INR consolidates as India’s retail inflation data takes centre stage
- The Indian Rupee wobbles against the US Dollar around 88.85 ahead of India’s retail inflation data for October.
- US President Trump states that he will reduce tariffs on Indian goods at some point.
- The US Senate advances the government funding bill to the House of Representatives.
The Indian Rupee (INR) trades flat against the US Dollar (USD) on Tuesday. The USD/INR pair remains sideways around 88.85 for almost a week as investors await a breakthrough in trade talks between the United States (US) and India.
Negotiators from both nations have been commenting that trade discussions are going well and they are close to reaching a consensus. However, an absence of a deal announcement has kept the Indian Rupee on its back foot.
On Monday, US President Donald Trump reiterated his confidence that Washington and New Delhi are close to a bilateral pact, but did not provide a timeframe. Trump said at “some point” he would reduce the tariff rate on Indian goods, saying the US was getting “pretty close” to a trade deal with New Delhi, Bloomberg reported. He added, “Right now they don’t love me, but they’ll love us again,” and “We’re getting a fair deal”.
Meanwhile, the sentiment of overseas investors towards the Indian stock market remains grim due to a delay in the US-India trade deal announcement. On Monday, Foreign Institutional Investors (FIIs) turned out to be net sellers and sold shares worth Rs. 4,114.85 crore.
Going forward, investors will focus on India’s retail Consumer Price Index (CPI) data for October, which will be released on Wednesday. The inflation data will significantly influence market expectations for the Reserve Bank of India’s (RBI) monetary policy outlook. Economists expect India’s retail inflation to have risen 0.48% on an annualized basis, slower than the 1.54% growth seen in September.
The table below shows the percentage change of Indian Rupee (INR) against listed major currencies today. Indian Rupee was the strongest against the British Pound.
| USD | EUR | GBP | JPY | CAD | AUD | INR | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | -0.02% | 0.37% | 0.17% | 0.11% | 0.31% | -0.19% | -0.23% | |
| EUR | 0.02% | 0.39% | 0.20% | 0.12% | 0.33% | -0.18% | -0.21% | |
| GBP | -0.37% | -0.39% | -0.20% | -0.26% | -0.08% | -0.57% | -0.60% | |
| JPY | -0.17% | -0.20% | 0.20% | -0.08% | 0.14% | -0.37% | -0.40% | |
| CAD | -0.11% | -0.12% | 0.26% | 0.08% | 0.21% | -0.31% | -0.33% | |
| AUD | -0.31% | -0.33% | 0.08% | -0.14% | -0.21% | -0.51% | -0.57% | |
| INR | 0.19% | 0.18% | 0.57% | 0.37% | 0.31% | 0.51% | -0.02% | |
| CHF | 0.23% | 0.21% | 0.60% | 0.40% | 0.33% | 0.57% | 0.02% |
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 Indian Rupee from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent INR (base)/USD (quote).
Daily digest market movers: The Fed might cut interest rates in December
- The quiet price action of the USD/INR pair on Tuesday is also influenced by a stable US Dollar during the Asian session. At the press time, the US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, trades flat around 99.65.
- The US Dollar trades calmly following the approval of the stopgap funding bill in the Senate to reopen the government after the historically longest shutdown.
- The Senate has advanced the bill to the House of Representatives, which would get passed by Wednesday, according to comments from Speaker Mike Johnson, Reuters reported.
- Meanwhile, investors brace for significant volatility in the US Dollar as the reopening of federal agencies would lead to a flood of economic data releases, which will direct the next move of the Federal Reserve (Fed).
- In the October policy meeting, the Fed stated that the interest rate cut was more a risk management and the December decision will be data-dependent.
- Investors will pay close attention to the employment data to get cues about the hiring trend. Latest commentaries from Fed officials signaled that they are cautious about weakening labor market conditions. Signs of softer job demand would boost expectations of more interest rate cuts by the Fed this year.
- Currently, the CME FedWatch tool shows that the probability of the Fed cutting interest rates in the December meeting is 62.4%.
Technical Analysis: USD/INR holds key 20-day EMA
The USD/INR pair remains confined in a tight range near 88.85. The pair stays above the 20-day Exponential Moving Average (EMA), which trades around 88.63.
The 14-day Relative Strength Index (RSI) strives to return above 60.00. A fresh bullish momentum would emerge if the RSI (14) manages to do so.
Looking down, the August 21 low of 87.07 will act as key support for the pair. On the upside, the all-time high of 89.12 will be a key barrier.
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.