November 11, 2024
New Delhi, India
USDINR Analysis
On Friday, the Indian Rupee (INR) lost momentum against the US Dollar (USD), driven by increased demand from importers related to month-end payments. Additionally, the unwinding of long positions in the currency market contributed to the INR’s softer stance. Despite this downturn, factors such as a decline in global crude oil prices and a strong performance in Indian equities might help cushion the fall of the INR.
Key Economic Events to Watch
Investors are closely monitoring key economic data releases that could impact market sentiment:
- US August Personal Consumption Expenditures (PCE) Price Index: Scheduled for release on Friday, this index is the Federal Reserve’s preferred inflation measure. The headline PCE is expected to increase by 2.3% year-on-year (YoY) in August, while the core PCE is estimated to rise by 2.7% YoY.
- Michigan Consumer Sentiment Index: Also set to be released later on Friday, this index will provide insights into consumer confidence in the US economy.
US Economic Indicators Update
- Durable Goods Orders: According to the US Census Bureau, durable goods orders were flat in August, showing no growth compared to a significant rise of 9.9% in July. This outcome was better than the forecasted decline of 2.6%, indicating some resilience in the US economy.
- GDP Growth: The US Bureau of Economic Analysis (BEA) confirmed that the Gross Domestic Product (GDP) grew at an annual rate of 3.0% in the second quarter (Q2), aligning with previous estimates.
- Fed Commentary: Fed Governor Lisa Cook noted that she supported the recent 50 basis points (bps) interest rate cut, citing increased “downside risks” to employment. Her comments reflect the Federal Reserve’s cautious approach to managing inflation while addressing potential economic weaknesses.
Asian and European Trading Sessions
The Indian Rupee traded softer during Friday’s Asian session, continuing its decline in early European trading on Monday. The currency faced pressures from month-end USD bids by importers, along with ongoing foreign equity outflows. However, a drop in global crude oil prices and possible interventions by the Reserve Bank of India (RBI) could help mitigate further losses for the INR.
Crude Oil Impact and RBI Intervention
India, being the world’s third-largest oil consumer, is heavily impacted by fluctuations in crude oil prices. The recent decline in oil prices has provided some relief to the Indian economy, as lower oil import costs may help ease the trade deficit and limit the depreciation of the Rupee. Additionally, routine interventions by the RBI, where the central bank sells USD to support the local currency, are expected to play a role in preventing significant depreciation.
Upcoming Economic Reports
Market participants are also bracing for critical inflation data from both India and the US:
- India’s October Consumer Price Index (CPI): Scheduled for release on Tuesday, this report will give insights into inflation trends within the Indian economy, helping investors gauge the RBI’s future policy moves.
- US CPI Inflation Report: Expected on Wednesday, this release will further illuminate the inflation landscape in the United States and influence expectations around the Federal Reserve’s monetary policy.
Market Sentiment Post-US Election
The Indian Rupee hit an all-time low on Monday, reflecting the market’s reaction to sustained outflows from Indian equities and expectations of a stronger USD following the US election results, where Donald Trump secured victory. The anticipation of higher US bond yields and a stronger Greenback adds to the pressure on the INR, as investors reassess their portfolios in light of the new economic policies expected under the Trump administration.
In summary, while the Rupee remains under pressure due to heightened USD demand from importers and capital outflows, factors such as falling crude oil prices and potential RBI market interventions may help limit its downside. Investors will be closely watching upcoming economic data, including the PCE Price Index and CPI reports, for further clues on the direction of inflation and monetary policy in both India and the US.
Latest Q2 Results
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