US Dollar to Indian Rupee (USD/INR) Exchange Rate Declines on Pared Fed Rate Hike Bets

The US Dollar to Indian Rupee currency pair registered declines on Monday as investors bet that last week’s disappointing US employment figures will prevent the Federal Reserve from increasing interest rates in the first quarter of 2015. Friday’s US Non-Farm Payrolls report showed that the US economy added more positions than forecast, taking the unemployment rate to a fresh low. However, investors chose to fixate on the news that the US participation rate declined and average earnings registered their largest decline since records began. While the US Dollar initially climbed following the report’s release, the North American currency registered widespread declines as economists’ bet that the wage news would delay borrowing costs being increased. As stated by industry expert N.S. Venkatesh; ‘Any bad US data reading has an impact on the market’s expectations of a Fed rate hike. Indian assets are rallying also amid hopes of a reduction in domestic interest rates as inflation stays under control.

The US Dollar to Indian Rupee exchange rate fell by 0.3% to trade in the region of 62.1550 per Dollar over the course of trading. While the Rupee was bolstered by US Dollar weakness, declines in the USD/INR pairing were also accrued as investors bet that Indian inflation data would produce an annual reading of 5.33 in December, below the Reserve Bank of India’s 6% target. Inflation actually came in at 5.0% - up only slightly from the previous month’s year-on-year figure of 4.38%. Meanwhile, Indian industrial production was shown to have increased by 3.8% on the year in November (bettering expectations for a year-on-year gain of 1.56%) and manufacturing production climbed 3.0% on the year, three times as much as the 1.02% advance anticipated.

In the hours ahead, the US Dollar to Indian Rupee exchange rate could fluctuate in response to the US Labour Market Conditions index and comments issued by a Federal Reserve official regarding the US economic outlook. Tomorrow’s Indian trade data and Wednesday’s WPI Inflation report could contribute to additional USD/INR movement, as could the US Consumer Price Index and domestic retail sales figures.