The Indian Rupee strengthened against the US Dollar on Monday, with the USD/INR exchange rate falling from a high of 63.1300 to trade in the region of 62.8500.
The news that India’s trade deficit narrowed to a 17-month low in February, coupled with a decline in the price of crude oil, helped the Rupee advance on the US Dollar at the beginning of the week.
Friday’s domestic trade data revealed that India’s deficit narrowed to 6.8 billion Dollars thanks to a sharp decline in oil imports.
The Rupee remained trending in a stronger position against the US Dollar following the publication of India’s Wholesale Price Index during Monday’s local session.
WPI declined for the fourth consecutive month in February, printing year-on-year deflation of -2.06%.
The slide was largely due to a 14.7% drop off fuel and power prices.
Prior to the release, Moody’s Analytics asserted; ‘Wholesale price inflation in India is nonexistent. Falling fuel and power costs have more than offset higher food and inflation. Core inflation is also weak, however, suggesting that the economy is growing below its potential rate.’
The data is likely to encourage the Reserve Bank of India (RBI) to continue with monetary easing.
Demand for the US Dollar was also limited during the North American session as US Industrial Production/Manufacturing Production figures fell short of forecasts. Industrial production was expected to have increased by 0.2% on the month in February following a negatively revised decline of -0.3% in January.
However, industrial output was only up 0.1% on the month. Meanwhile, manufacturing production in the world’s largest economy fell by -0.2% on the month in February rather than stagnating as predicted – January’s manufacturing figure was also negatively adjusted.
Earlier in the session the US Empire Manufacturing gauge fell from 7.78 to 6.90 instead of advancing to 8.00 as anticipated.
Ahead of Wednesday, and the hotly anticipated Federal Open Market Committee (FOMC) policy announcement, movement in the USD/INR currency pair could be caused by the US Housing Starts and Building Permits figures.
Economists are anticipating a 0.5% month-on-month increase in building permits for February and a -1.6% decline in housing starts.
Further below-forecast US data could wear on the ‘Greenback’ prior to the FOMC announcement.
If the Fed adjusts its tone with regards to the outlook for interest rate increases and ditches the word ‘patience’ from its statement, the US Dollar could soar across the board and higher-risk assets, like the Rupee, are liable to depreciate.
The week’s Indian economic reports are of comparatively low volatility and so are unlikely to have much of an impact on the direction taken by the USD/INR pairing.