USD/INR posts modest gains ahead of the US PPI, Fed rate decision

Indian Rupee loses traction on the modest US Dollar (USD) demand.
Indian Consumer Price Index (CPI) surged 5.55% YoY in November vs. 4.87% prior, Food Inflation climbed to 8.70% vs. 6.61% prior.
Market players will closely watch the Fed interest rate decision and the press conference.

Indian Rupee (INR) extends its downside amid modest US Dollar (USD) strength. Data released on Tuesday revealed that the Indian Consumer Price Index (CPI) came in higher than the Reserve Bank of India (RBI) target of 4.0%. Although headline inflation remained within its tolerance range of 2–6% for the third consecutive month, it has surpassed the medium-term target of 4% for the past 50 consecutive months.

Furthermore, the Consumer Food Price Index, which measures food inflation, increased by 8.70% in November from 6.61% the previous month. Last week, the RBI Monetary Policy Committee decided to keep the policy repo rate steady at 6.50%, and the MPC stated that they will closely monitor any indications of food price pressures.

Investors await the US Producer Price Index (PPI) on Wednesday ahead of the Federal Reserve (Fed) monetary policy meeting. The annual PPI figure is forecast to ease from 1.3% to 1.0% in November, while the PPI rate ex Food & Energy is expected to drop from 2.4% to 2.2% in the same period. The highlight will be the Fed interest rate decision, with no change expected. Nonetheless, investors will examine Fed Chair Jerome Powell’s comments after the meeting for fresh impetus.

Daily Digest Market Movers: Indian Rupee trades weaker amid higher inflation concern

India’s Consumer Price Index (CPI) surged 5.55% YoY in November from 4.87% in October, according to the Ministry of Statistics & Programme Implementation.
Indian Industrial Production for October reached a 16-month peak, rising by 11.7% compared to a 4.1% increase in the previous reading.
Indian Manufacturing Output for October came in at 10.4% MoM versus 4.9% prior.
The International Monetary Fund (IMF) stated that India’s economy will be one of the fastest-growing in the world over the next few years, estimating Real Gross Domestic Product (real GDP) to expand by more than 6.0% in both 2023 and 2024.
According to the National Securities Depository, foreign investors allotted  $3.7 billion in Indian equities and $800 million in debt over the six sessions in December.
US inflation, as measured by the Consumer Price Index (CPI), climbed 0.1% MoM in November from 0% in October, while the annual CPI eased from 3.2% to 3.1% in November.
The Core CPI, which excludes volatile food and energy prices, rose to 0.3% MoM from 0.1% in the previous month. On an annual basis, the Core CPI figure grew 4.0% YoY, matching expectations.
The markets anticipate the Fed to maintain the benchmark overnight borrowing rate in a range between 5.25% and 5.50% at its December meeting.

Technical Analysis: Indian Rupee’s constructive outlook remains unchanged

Indian Rupee trades on a softer note on the day. The USD/INR pair has traded in a familiar trading band between 82.80 and 83.40 since September. According to the daily chart, USD/INR maintains a bullish vibe as the pair holds above the key 100-day Exponential Moving Average (EMA). The upward momentum is reinforced by the 14-day Relative Strength Index (RSI) that stands above the 50.0 midline.

A decisive break above the upper boundary of the trading range at 83.40 will see the next upside barrier near the year-to-date (YTD) high of 83.47, en route to a psychological round mark of 84.00. On the other hand, any follow-through selling below the critical support level of 83.00 round figure will next downside stop near the confluence of the lower limit of the trading range and a low of September 12 at 82.80, followed by 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 weakest against the Canadian Dollar.

 
USD
EUR
GBP
CAD
AUD
JPY
NZD
CHF

USD
 
0.09%
0.15%
0.05%
0.16%
0.23%
0.59%
0.07%

EUR
-0.09%
 
0.06%
-0.03%
0.05%
0.14%
0.49%
-0.02%

GBP
-0.16%
-0.05%
 
-0.09%
0.00%
0.08%
0.43%
-0.08%

CAD
-0.07%
0.04%
0.10%
 
0.08%
0.16%
0.52%
-0.02%

AUD
-0.14%
-0.06%
-0.01%
-0.09%
 
0.07%
0.43%
-0.09%

JPY
-0.23%
-0.13%
-0.08%
-0.19%
-0.10%
 
0.35%
-0.16%

NZD
-0.59%
-0.49%
-0.44%
-0.52%
-0.43%
-0.35%
 
-0.52%

CHF
-0.07%
0.02%
0.08%
0.00%
0.07%
0.17%
0.51%
 

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).

Interest rates FAQs

Interest rates are charged by financial institutions on loans to borrowers and are paid as interest to savers and depositors. They are influenced by base lending rates, which are set by central banks in response to changes in the economy. Central banks normally have a mandate to ensure price stability, which in most cases means targeting a core inflation rate of around 2%.
If inflation falls below target the central bank may cut base lending rates, with a view to stimulating lending and boosting the economy. If inflation rises substantially above 2% it normally results in the central bank raising base lending rates in an attempt to lower inflation.

Higher interest rates generally help strengthen a country’s currency as they make it a more attractive place for global investors to park their money.

Higher interest rates overall weigh on the price of Gold because they increase the opportunity cost of holding Gold instead of investing in an interest-bearing asset or placing cash in the bank.
If interest rates are high that usually pushes up the price of the US Dollar (USD), and since Gold is priced in Dollars, this has the effect of lowering the price of Gold.

The Fed funds rate is the overnight rate at which US banks lend to each other. It is the oft-quoted headline rate set by the Federal Reserve at its FOMC meetings. It is set as a range, for example 4.75%-5.00%, though the upper limit (in that case 5.00%) is the quoted figure.
Market expectations for future Fed funds rate are tracked by the CME FedWatch tool, which shapes how many financial markets behave in anticipation of future Federal Reserve monetary policy decisions.

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