• The Indian Rupee surrenders early gains against the US Dollar, while investors await the outcome of US-China trade talks.
  • This week, investors will pay close attention to the US/India CPI data for May.
  • The RBI will halt its VRR auctions, which it began earlier this year, starting from June 11.

The Indian Rupee (INR) gives back its initial gains against the US Dollar (USD) during European trading hours on Tuesday. The USD/INR pair flattens around 85.65 as the US Dollar trades calmly, awaiting the release of the United States (US)-China meeting minutes. Still, the US Dollar Index (DXY) is broadly in a tight range between 98.80-99.30 as investors hesitate to build fresh positions before the outcome of the Sino-US trade talks.

Trade discussions between top negotiators from Washington and Beijing have extended to a second day in London, while the White House has signaled that the meeting will end positively.

White House economic adviser Kevin Hassett expressed confidence in an interview with CNBC on Monday that “export controls to be eased and rare earths to be released in volume” after the meeting.

On the economic front, investors keenly await the US Consumer Price Index (CPI) data for May, which will be released on Tuesday. Investors will pay close attention to the US inflation data as it will influence market expectations for the Federal Reserve’s (Fed) monetary policy outlook.

Daily digest market movers: Indian Rupee outperforms its major peers

  • The Indian Rupee outperforms its peers, except the US Dollar, during European trading hours on Tuesday. The Indian currency gains while investors await the release of the Consumer Price Index (CPI) data for May, scheduled for Thursday. As measured by the CPI, US inflation is estimated to have risen by 3% year-over-year, slower than the 3.16% growth seen in April.
  • Soft inflation data would boost market expectations that the Reserve Bank of India (RBI) could lower the Repo Rate again in the next monetary policy announcement. In the policy meeting on Friday, the RBI changed its stance from “accommodative” to “neutral”, but signaled there is little room for more interest rate cuts. 
  • The RBI announced a pro-growth monetary policy last week in which it front-loaded interest rate cuts. The Indian central bank slashed the repo rate by 50 basis points (bps) to 5.5% and reduced its Cash Reserve Ratio (CRR) by 100 basis points (bps) to 3%.
  • Meanwhile, the RBI has announced that it is concluding its daily variable rate repo (VRR) auctions from Wednesday. The central bank started VRR auctions on January 16 to fulfil the need for liquidity for the productive sector, given tight market conditions.
  • Investors also await the US inflation data from the US region. According to the estimates, the US headline and core CPI rose at a faster pace of 2.5% and 2.9% year-on-year, respectively, a scenario that will discourage Federal Reserve (Fed) officials from lowering interest rates. 
  • This week, the University of Michigan (UoM) will release preliminary one-year and five-year Consumer Inflation Expectations data for June, which has been a key driver behind increasing confidence of financial market participants that the Fed will not cut interest rates in the near term.
  • Investors have quoted new economic policies by US President Trump as inflationary for the economy, which have also restricted Fed officials from being outspoken on the monetary expansion approach.

Indian Rupee PRICE Today

The table below shows the percentage change of Indian Rupee (INR) against listed major currencies today. Indian Rupee was the strongest against the British Pound.

USD EUR GBP JPY CAD AUD NZD INR
USD 0.13% 0.48% 0.07% 0.05% 0.05% 0.08% 0.02%
EUR -0.13% 0.36% -0.10% -0.06% -0.06% -0.04% -0.19%
GBP -0.48% -0.36% -0.51% -0.42% -0.42% -0.40% -0.47%
JPY -0.07% 0.10% 0.51% 0.00% -0.04% -0.06% -0.11%
CAD -0.05% 0.06% 0.42% -0.01% -0.00% 0.02% -0.11%
AUD -0.05% 0.06% 0.42% 0.04% 0.00% 0.04% -0.09%
NZD -0.08% 0.04% 0.40% 0.06% -0.02% -0.04% -0.21%
INR -0.02% 0.19% 0.47% 0.11% 0.11% 0.09% 0.21%

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 Indian Rupee from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent INR (base)/USD (quote).

Technical Analysis: Indian Rupee strives to hold 20-day EMA

The USD/INR pair trades flat around 85.65 during European trading hours on Tuesday. Earlier in the day, the pair slided to near the 20-day Exponential Moving Average (EMA) around 85.47, however it recovered later, indicating that the near-term trend is uncertain.

The 14-day Relative Strength Index (RSI) hovers inside the 40.00-60.00 range, indicating a sideways trend.

Looking down, the June 3 low of 85.30 is a key support level for the major. A downside break below the same could expose it to the May 26 low of 84.78. On the upside, the pair could revisit an over 11-week high around 86.70 after breaking above the May 22 high of 86.10.

Inflation FAQs

Inflation measures the rise in the price of a representative basket of goods and services. Headline inflation is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core inflation excludes more volatile elements such as food and fuel which can fluctuate because of geopolitical and seasonal factors. Core inflation is the figure economists focus on and is the level targeted by central banks, which are mandated to keep inflation at a manageable level, usually around 2%.

The Consumer Price Index (CPI) measures the change in prices of a basket of goods and services over a period of time. It is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core CPI is the figure targeted by central banks as it excludes volatile food and fuel inputs. When Core CPI rises above 2% it usually results in higher interest rates and vice versa when it falls below 2%. Since higher interest rates are positive for a currency, higher inflation usually results in a stronger currency. The opposite is true when inflation falls.

Although it may seem counter-intuitive, high inflation in a country pushes up the value of its currency and vice versa for lower inflation. This is because the central bank will normally raise interest rates to combat the higher inflation, which attract more global capital inflows from investors looking for a lucrative place to park their money.

Formerly, Gold was the asset investors turned to in times of high inflation because it preserved its value, and whilst investors will often still buy Gold for its safe-haven properties in times of extreme market turmoil, this is not the case most of the time. This is because when inflation is high, central banks will put up interest rates to combat it. Higher interest rates are negative for Gold because they increase the opportunity-cost of holding Gold vis-a-vis an interest-bearing asset or placing the money in a cash deposit account. On the flipside, lower inflation tends to be positive for Gold as it brings interest rates down, making the bright metal a more viable investment alternative.

Source: Fxstreet