Indian Rupee gains momentum, eyes on US bond yield, oil prices
- Indian Rupee trades firmly, supported by the potential aggressive intervention by the Reserve Bank of India (RBI).
- A rise in US Treasury yields and higher crude oil prices might cap the upside of the Indian Rupee.
- Investors will focus on the RBI Forex swap maturity, US economic data.
Indian Rupee (INR) posts modest gains on Monday. The strengthening of the Indian Rupee is bolstered by the potential aggressive intervention by the Reserve Bank of India (RBI) last week. However, the anticipation that the Federal Reserve (Fed) will hold rates ‘higher for longer’ lifts the US Treasury yields near multi-year highs. However, a rise in oil prices might cap the upside of the Indian Rupee.
Traders will keep an eye on a $5 billion RBI swap transaction, which is set to mature on Monday. The maturity of the USD/INR swaps will wipe out $5 billion from the system while injecting about 400 billion Rupees. Furthermore, the release of the US S&P Global PMI, the first reading of Q3 Gross Domestic Product (GDP), and the Core Personal Consumption Expenditures (PCE) data this week will be closely watched by traders.
Daily Digest Market Movers: Indian Rupee gains traction with the bullish economic outlook
- Fed Chair Jerome Powell and other officials expressed a desire to hold rates unless inflation rises.
- September's US budget deficit was $170 billion. The overall 2023 budget deficit was $1.695 trillion, 23% larger than the previous year and exceeding all pre-COVID deficits.
- RBI Chief Shaktikanta Das said the central bank does intervene in the forex market, but only to prevent excessive volatility of the Indian Rupee.
- Chief Das stated that RBI will monitor the evolving inflation dynamic amid the uncertainty on food inflation.
- India's Finance Minister will focus on the impact of ongoing tensions in the Middle East on the supply chain.
- The Indian government is concerned with the settlement currency, the yuan, as Indian refiners have used the yuan to pay for some oil from Russian sellers.
- The RBI's October bulletin suggested growth is expected to gain momentum through the rest of the year.
- The RBI sold a net $3.86 billion in the spot foreign exchange market in August.
- India’s Wholesale Price Index (WPI) for September came in at -0.26% YoY from 0.52% in the previous reading, missing the market estimation of 0.50%.
Technical Analysis: Indian Rupee holds above the key support level around the 83.00 mark
The Indian Rupee kicks off the week in a positive mood against the US Dollar (USD). The USD/INR pair trades within a narrow range of 83.15-83.30 and the key contention level is seen at the 83.00 psychological round mark. A breach below the latter could see a drop to 82.82 (low of September 12), followed by 82.65 (low of August 4). On the upside, the first resistance level for USD/INR is located near a high of October 4 at 83.30, en route to the all-time high around 83.45, followed by a psychological figure at 84.00. In the meantime, the pair holds above the 100- and 200-day Exponential Moving Averages (EMA) on the daily chart, which hints that further upside looks favorable.
US Dollar price in the last 7 days
The table below shows the percentage change of US Dollar (USD) against listed major currencies in the last 7 days. US Dollar was the weakest against the Swiss Franc.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | -0.52% | 0.00% | 0.52% | -0.04% | 0.23% | 1.41% | -0.92% | |
| EUR | 0.52% | 0.52% | 1.04% | 0.48% | 0.74% | 1.92% | -0.41% | |
| GBP | 0.00% | -0.52% | 0.53% | -0.04% | 0.23% | 1.41% | -0.92% | |
| CAD | -0.53% | -1.05% | -0.51% | -0.56% | -0.30% | 0.89% | -1.45% | |
| AUD | 0.04% | -0.49% | 0.03% | 0.57% | 0.26% | 1.45% | -0.90% | |
| JPY | -0.22% | -0.72% | -0.22% | 0.29% | -0.25% | 1.20% | -1.12% | |
| NZD | -1.44% | -1.96% | -1.43% | -0.90% | -1.48% | -1.19% | -2.40% | |
| CHF | 0.91% | 0.41% | 0.92% | 1.43% | 0.90% | 1.15% | 2.31% |
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).
RBA FAQs
What is the Reserve Bank of Australia and how does it influence the Australian Dollar?
The Reserve Bank of Australia (RBA) sets interest rates and manages monetary policy for Australia. Decisions are made by a board of governors at 11 meetings a year and ad hoc emergency meetings as required. The RBA’s primary mandate is to maintain price stability, which means an inflation rate of 2-3%, but also “..to contribute to the stability of the currency, full employment, and the economic prosperity and welfare of the Australian people.” Its main tool for achieving this is by raising or lowering interest rates. Relatively high interest rates will strengthen the Australian Dollar (AUD) and vice versa. Other RBA tools include quantitative easing and tightening.
How does inflation data impact the value of the Australian Dollar?
While inflation had always traditionally been thought of as a negative factor for currencies since it lowers the value of money in general, the opposite has actually been the case in modern times with the relaxation of cross-border capital controls. Moderately higher inflation now tends to lead central banks to put up their interest rates, which in turn has the effect of attracting more capital inflows from global investors seeking a lucrative place to keep their money. This increases demand for the local currency, which in the case of Australia is the Aussie Dollar.
How does economic data influence the value of the Australian Dollar?
Macroeconomic data gauges the health of an economy and can have an impact on the value of its currency. Investors prefer to invest their capital in economies that are safe and growing rather than precarious and shrinking. Greater capital inflows increase the aggregate demand and value of the domestic currency. Classic indicators, such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can influence AUD. A strong economy may encourage the Reserve Bank of Australia to put up interest rates, also supporting AUD.
What is Quantitative Easing (QE) and how does it affect the Australian Dollar?
Quantitative Easing (QE) is a tool used in extreme situations when lowering interest rates is not enough to restore the flow of credit in the economy. QE is the process by which the Reserve Bank of Australia (RBA) prints Australian Dollars (AUD) for the purpose of buying assets – usually government or corporate bonds – from financial institutions, thereby providing them with much-needed liquidity. QE usually results in a weaker AUD.
What is Quantitative tightening (QT) and how does it affect the Australian Dollar?
Quantitative tightening (QT) is the reverse of QE. It is undertaken after QE when an economic recovery is underway and inflation starts rising. Whilst in QE the Reserve Bank of Australia (RBA) purchases government and corporate bonds from financial institutions to provide them with liquidity, in QT the RBA stops buying more assets, and stops reinvesting the principal maturing on the bonds it already holds. It would be positive (or bullish) for the Australian Dollar.