- The Indian Rupee may advance as US data reinforce the likelihood of an aggressive Fed rate cut.
- CME FedWatch Tool suggests the likelihood of a 50 bps rate cut has sharply increased to 41.0%.
- India Consumer Price Index increased 3.65% in August, against the expected 3.55% and July’s 3.54% readings.
The USD/INR pair moves slightly lower following the losses registered in the previous as recent US economic data reinforced the odds of an aggressive rate cut by the Federal Reserve (Fed) next week.
According to the CME FedWatch Tool, markets are fully pricing at least a 25 basis point (bps) rate cut by the Federal Reserve at its September meeting. The likelihood of a 50 bps rate cut has sharply increased to 41.0%, up from 14.0% a day ago.
India’s August retail inflation was slightly higher than economists’ expectations on the back of a sharp rise in vegetable prices, Reuters cited government data released on Thursday. Consumer Price Index (CPI) rose 3.65% in August, compared with expected 3.55% and July’s 3.54% readings.
On Thursday, Reuters cited five traders stating that the Reserve Bank of India (RBI) might have intervened in the open markets to prevent the Indian Rupee (INR) from weakening beyond the 84.00 level. Traders await Trade Deficit Government and FX Reserves, USD scheduled to be released on Friday.
Daily Digest Market Movers: Indian Rupee gains ground due to improved risk sentiment
- The Reserve Bank of India Governor Shaktikanta Das said at the Bretton Woods Committee’s annual Future of Finance Forum on Friday that India’s growth potential is 7.5% or more, which is a little above the central bank’s full-year forecast for 2024 of 7.2%, per Reuters.
- The US Producer Price Index (PPI) rose to 0.2% month-on-month in August, exceeding the forecasted 0.1% increase and the previous 0.0%. Meanwhile, core PPI accelerated to 0.3% MoM, against the expected 0.2% rise and July’s 0.2% contraction.
- US Initial Jobless Claims rose slightly higher for the week ended September 6, increasing to the expected 230K from the prior 228K reading.
- India’s Industrial Output rose by 4.8% in July, slightly above market expectations of 4.7%, following a 4.2% growth in the previous month.
- India is considering relaxing investment rules for Chinese firms to stimulate its manufacturing sector. Additionally, the country has eased visa issuance for Chinese nationals to support local manufacturing. India’s trade deficit with China has nearly doubled since 2020, according to a Reuters report.
- The US Consumer Price Index dipped to 2.5% year-on-year in August, from the previous reading of 2.9%. The index has fallen short of the expected 2.6% reading. Meanwhile, headline CPI stood at 0.2% MoM. Core CPI ex Food & Energy, remained unchanged at 3.2% YoY. On a monthly basis, core CPI rose to 0.3% from the previous 0.2% reading.
- The first US presidential debate between former President Donald Trump and Democratic nominee Kamala Harris in Pennsylvania was won by Harris, according to a CNN poll. The debate began with a critical focus on the economy, inflation, and economic policies.
Technical Analysis: USD/INR breaks below symmetrical triangle, hovering below 84.00
The USD/INR pair trades around 83.90 on Friday. Analysis of the daily chart shows that the USD/INR pair has broken below the symmetrical triangle pattern, indicating the emergence of a bearish bias. However, the 14-day Relative Strength Index (RSI) remains slightly above the 50 level, suggesting a retest of the triangle pullback cannot be ruled out.
On the downside, the USD/INR pair may retest its six-week low around 83.72, followed by the psychological level of 83.50.
In terms of resistance, the nine-day Exponential Moving Average (EMA) at 83.91 could serve as an immediate barrier, aligning with the lower boundary of the symmetrical triangle near 83.95.
Further resistance appears at the upper boundary of the symmetrical triangle near the 84.00 level. A breakout above this point could propel the pair toward the all-time high of 84.14, recorded on August 5.
USD/INR: Daily Chart
Interest rates FAQs
Interest rates are charged by financial institutions on loans to borrowers and are paid as interest to savers and depositors. They are influenced by base lending rates, which are set by central banks in response to changes in the economy. Central banks normally have a mandate to ensure price stability, which in most cases means targeting a core inflation rate of around 2%. If inflation falls below target the central bank may cut base lending rates, with a view to stimulating lending and boosting the economy. If inflation rises substantially above 2% it normally results in the central bank raising base lending rates in an attempt to lower inflation.
Higher interest rates generally help strengthen a country’s currency as they make it a more attractive place for global investors to park their money.
Higher interest rates overall weigh on the price of Gold because they increase the opportunity cost of holding Gold instead of investing in an interest-bearing asset or placing cash in the bank. If interest rates are high that usually pushes up the price of the US Dollar (USD), and since Gold is priced in Dollars, this has the effect of lowering the price of Gold.
The Fed funds rate is the overnight rate at which US banks lend to each other. It is the oft-quoted headline rate set by the Federal Reserve at its FOMC meetings. It is set as a range, for example 4.75%-5.00%, though the upper limit (in that case 5.00%) is the quoted figure. Market expectations for future Fed funds rate are tracked by the CME FedWatch tool, which shapes how many financial markets behave in anticipation of future Federal Reserve monetary policy decisions.
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