Indian Rupee Rises as US Inflation Slows Down

The Indian Rupee (INR) shows resilience, bolstered by a decline in US Treasury bond yields and a weakening USD.

Indian Wholesale Price Index Remains in Deflationary Zone

October witnesses India’s Wholesale Price Index (WPI) lingering in deflation. Thus, reflecting a consecutive seventh month at -0.52% against the prior -0.26%. The focus shifts to the Indian Trade Balance report and the unveiling of US Producer Price Index (PPI) and Retail Sales on Wednesday.

Indian Rupee Trades Firmly Amidst US Treasury Yields’ Decline

Wednesday witnesses a sturdy INR performance amid the downward trajectory of US Treasury bond yields. India’s WPI remaining in deflationary territory for the seventh straight month in October (-0.52% vs. -0.26% prior) indicates subdued wholesale inflation, primarily in manufactured products. However, India remains susceptible to escalated crude prices as the world’s third-largest oil consumer.

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Market Anticipation on Indian Trade Balance

Observers await October’s Indian Trade Balance report. The Reserve Bank of India (RBI) might intervene to curb national currency volatility, potentially limiting INR depreciation.

October sees India’s headline retail price inflation dip to a four-month low at 4.9%. RBI maintains a hawkish policy to mitigate inflation, eyeing a 4% target.

Technical Analysis: Indian Rupee Strength and Upside Potential

The USD/INR pair maintains a bullish stance, hovering near the lower limit of the 83.00–83.35 trading range since late September. Upside potential remains constrained, with key support at 82.82 and resistance at 83.35 and 84.00.

USD exhibited weakness against major currencies in the last week, notably against the Euro.

In a notable shift, the Indian rupee began 27 paise higher against the US dollar on Wednesday, propelled by a sharp decline in the dollar and Treasury yields. Starting at 83.06 a dollar, a marked improvement from its prior close of 83.33, this surge was attributed to the dollar index’s slight rise and stability in the 10-year US benchmark yield.

Impact of US Inflation Data

US inflation rose by 3.2% over the 12 months through October, following a 3.7% increase in September. However, the dollar witnessed its largest drop in a year post softer inflation data, sparking expectations that the Federal Reserve might halt or even reduce interest rates by mid-2024.

India’s Retail Inflation and Market Response

On the other hand, India’s retail inflation, measured by the Consumer Price Index (CPI), eased to a four-month low of 4.87% in October. The rupee’s performance improved compared to the previous day, marking a slight increase on Monday when Indian markets were closed.

Indian Rupee Market Predictions and Activities

Market analysts foresee a potential appreciation of the rupee due to the dollar’s correction, possibly reaching the 83.00 mark. This projection gains strength from the upswing in domestic equities, with both the Sensex and Nifty indices reflecting positive global cues.

Foreign and Domestic Investments

Foreign and Domestic Institutional Investors showed a mixed pattern in the Indian stock market, with FIIs engaging in net selling while DIIs purchased shares. However, gains were somewhat constrained by the rising crude oil prices.

As the Indian rupee strengthens against the dollar, it underscores the intricate influence of global economic factors on currency movements.