USD/INR: Delayed Reaction to Rising Indian Inflation

The US dollar is down against the Indian rupee on Monday morning with stimulus in China sending the yuan higher and pressuring the dollar lower in what is otherwise thin trading because of the Presidents Day holiday in the United States.

USD/INR was lower by 12 pips (-0.17%) to 71.40 with a daily range of 71.34 to 71.526 as of 10am GMT. The currency pair gained 0.28% on Friday meaning a weekly return of +0.02%, essentially closing out the week unchanged for a second week running.

USD/INR hit two-week highs last week amid stronger US economic data

The dollar-Indian rupee exchange rate hit two-week highs last week as stronger economic data from the United States created demand for the dollar while investors sold out of emerging-market currencies like the rupee due to concerns over the Coronavirus. The number of cases of the coronavirus COVID-19 had started slowing down but have since jumped again after authorities in the Hubei province changed their methodology for detecting the virus.

On Monday, the dollar was losing some steam and edged back from the two-week high against the Indian rupee thanks in part to strength in the Chinese yuan. The yuan is pegged against the US dollar so whenever there is more demand for the yuan, that typically means most of the corresponding selling is in the US dollar. The Chinese government announcing plans for new fiscal stimulus, including tax cuts and subsides pushed the yuan higher since they are designed to help protect the Chinese economy from the economic consequences of the measures to contain the coronavirus.

INR: Inflation in India rose 3.1%, up from 2.59% previously

Broader dollar-strength on Friday has caused a delayed reaction to better economic data from India. The inflation, data published on Friday, was helped by a 7.1% rise in bank loan growth year-over-year, up from 7.1% previously.

Limiting the gains in the rupee has been a recovery in oil prices. WTI crude rose 5.2% last week after reaching one-year lows. Investors are expecting a quick improvement in oil demand once the travel restrictions in China have been lifted so that oil tankers can dock, and flight routes are reopened.

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