August 13, 2024
New Delhi, India
Rupee Analysis(USDINR)
The Indian Rupee (INR) continues to face pressure in Tuesday’s Asian trading session, despite the US Dollar (USD) maintaining a consolidative stance. The INR’s decline is driven by multiple factors, including weaker performance among Asian currencies, rising crude oil prices, and softer domestic inflation data. Market participants are also adopting a cautious approach ahead of key US economic data, particularly the Producer Price Index (PPI) for July, which is due later today.
The Indian Rupee (INR) is experiencing a downturn, influenced by several key factors. First, it is following a broader trend of depreciation among Asian currencies, leading to its current weakness. Second, rising crude oil prices pose a challenge, as India is a significant importer of oil, making the currency more susceptible to fluctuations in energy costs. Third, India’s Consumer Price Index (CPI) inflation eased to 3.54% year-over-year in July from 5.08% in June, the lowest level since August 2019. Despite this positive news, the market remains cautious about future economic data and policies, which is weighing on the INR. Finally, investors are closely monitoring upcoming US economic data, particularly the Producer Price Index (PPI) for July, for clues on the Federal Reserve’s monetary policy trajectory, with expectations of a slight decrease to 0.1% month-over-month, down from 0.2% in the previous reading.
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Potential RBI Intervention: Despite the INR’s downward trajectory, the Reserve Bank of India (RBI) is likely to intervene by selling USD to prevent significant depreciation of the local currency. This intervention could limit further upside in the USD/INR pair.
Looking Ahead:
- US Economic Data: Traders are focused on the upcoming US PPI data for July, which could provide fresh impetus for USD/INR movements. Additionally, the US Consumer Price Index (CPI) data due on Wednesday will offer further clues about the Fed’s stance on potential rate cuts.
- Indian Economic Indicators: On the domestic front, attention will be on India’s Wholesale Price Index (WPI) inflation, which is expected to ease from 3.36% year-over-year in June to 2.39% in July. This data will be closely watched for its impact on the INR.
Market Expectations:
- RBI Rate Outlook: The swaps market currently anticipates steady rates by the RBI over the next three months, followed by a 25 basis points (bps) easing in the subsequent three months, and an additional 25 bps cut over the following six months.
- Fed Rate Outlook: According to the CME FedWatch Tool, the likelihood of a 50 basis points (bps) interest rate cut by the Federal Reserve at its September meeting has decreased to 47.5%, down from 52.5% last Friday.
The USDINR pair remains positive ahead of the US PPI data, with the Indian Rupee under pressure from a combination of weaker Asian currencies, higher crude oil prices, and softer domestic inflation data. While the Reserve Bank of India may step in to curb significant depreciation, traders will closely monitor both Indian and US economic indicators in the coming days for further direction.
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