- Indians perform better than the US dollar, while investors wait for the outcome of the US-China trade talks.
- This week, investors will pay full attention to the US/India CPI data for May.
- The RBI will stop its VRR auction, which began earlier this year, which began on 11 June.
The Indian rupee on Tuesday expanded the line of victory against the US Dollar (USD) for the fourth trading day. After opening the USD/INR pair, close to 85.55, even as the Asian trading hours as the banks of the US dollar, lasts up to higher during the hours. Nevertheless, the US Dollar Index (DXY) is broadly in a tight border between 98.80-99.30 as investors are the United States (US) -china meeting hesitant to build new positions before the release of minutes.
The trade discussion between the top dialogues of Washington and Beijing has increased to the second day in London, while the White House indicated that the meeting will end positively.
White House Economic Advisor Kevin Haset expressed confidence in an interview with CNBC on Monday that “export control has to be released in the volume”.
On the economic front, investors wait for the US Consumer Price Index (CPI) data for May, which will be released on Tuesday. Investors will pay full attention to US inflation figures as it will affect the market expectations for the Federal Reserve (Fed) monetary policy approach.
Daily Digest Market Movers: Indian rupees do more business against their peers
- The Indian rupee improves its peers during the Asian business hours on Tuesday. As Indian currency benefits, investors are waiting for May to release the Consumer Price Index (CPI) data for May, which is scheduled for Thursday. As measured by CPI, American inflation is estimated to increase 3% year-on-year, which is slower than an increase of 3.16% seen in April.
- Soft inflation data will promote market expectations that the Reserve Bank of India (RBI) may reducing the repo rate again in the next monetary policy announcement. At the policy meeting on Friday, the RBI turned its stance from “adjustment” to “neutral”, but indicated that there is very little space to cut more interest rates.
- The RBI announced a monetary policy of a pro-development last week, in which it cuts the front-loaded interest rate. The Indian bank dropped the repo rate to 5.5% from the 50 basis points (BPS) and reduced its cash reserve ratio (CRR) by 100 basis points (BPS) to 3%.
- Meanwhile, the RBI has announced that it is concluding its daily variable rate repo (VRR) auction from Wednesday. The Central Bank started the VRR auction on 16 January, so that the need for liquidity for the producing area could be met, which is given the market status.
- In the US region, investors will focus on Wednesday’s CPI data for May. According to estimates, the US headline and core CPI increased at a fast pace of 2.5% and 2.9% year-year respectively, a landscape that will discourage the Federal Reserve (Fed) officials from reducing interest rates.
- This week, the University of Michigan (UOM) will release the data of one year and five -year consumer inflation for June, which will not cut interest rates in the near period in the near period, a major driver behind increasing the confidence of the financial market participants.
- Investors have cited new economic policies by US President Trump as inflation for the economy, which have also banned the Fed officials from being vocal on the monetary expansion approach.
Technical analysis: Indian rupee struggles around 20-day EMA
The USD/INR pair rests near 85.55 during the Asian trade session. The pair revolves around the 20-day exponential moving average (EMA), indicating that the trend of near period is uncertain.
The 14-day relative power index (RSI) hovers within the 40.00-60.00 range, indicating a sidewalk trend.
Looking down, the 3 June of 85.30 is a significant support level for the Lower Head. A negative break below that can expose it to the low -lying level of 26 May of 84.78. On the contrary, the pair can re-view more than 86.70 at a high level of more than 86.70 after breakdown above 86.10 of 86.70.
Indian rupee
Indian rupee (INR) is one of the most sensitive currencies for external factors. The price of crude oil (country is highly dependent on imported oil), US dollar value – most trade is conducted in USD – and the levels of foreign investment are all impressive. To keep the exchange rate stable, FX markets have direct intervention by the Reserve Bank of India (RBI), as well as the level of interest rates set by the RBI, on the rupee and the major affected factors.
The Reserve Bank of India (RBI) actively interfere with foreign exchange markets to maintain a stable exchange rate, so that it can help in facilitating business. In addition, the RBI tries to maintain inflation rate at its 4% target by adjusting interest rates. High interest rates usually strengthen the rupee. This is due to the role of ‘Carry Trade’ in which investors borrow in countries with low interest rates so that they invest their money in countries’
Macroeconomic factors that affect the value of rupee include inflation, interest rate, economic growth rate (GDP), balance of business and influx from foreign investment. A high growth rate can lead to more foreign investment, increasing the demand for rupee. A low negative balance of business will eventually lead to a strong rupee. High interest rates, especially real rates (interest rates low inflation) are also positive for rupees. A risk-environment can lead to greater flow of foreign direct and indirect investment (FDI and FII), which also benefits the rupee.
High inflation, in particular, if it is comparatively higher than India’s companions, is generally negative to currency because it reflects devaluation through oversuply. Inflation also increases the cost of exports, which sells more rupees to buy foreign imports, which is rupee-negative. At the same time, high inflation usually leads to the Reserve Bank of India (RBI), which increases interest rates and may be positive for the rupee due to an increase in demand from international investors. The opposite effect is true of low inflation.
