The Indian Rupee is facing heightened pressure due to ongoing USD strength and concerns about India’s economic slowdown. This has led to the Rupee weakening for the eighth consecutive session, with the USD demand widening the arbitrage with the Indian onshore market. Factors such as a discouraging growth rate in India, a wider trade deficit, and a slowdown in capital inflows have contributed to the Rupee’s downside. However, the Reserve Bank of India (RBI) could intervene by selling USD to provide short-term relief for the Rupee. Traders are closely monitoring the US December ISM Manufacturing Purchasing Managers Index (PMI) and a speech by the Federal Reserve Bank of Richmond’s President Thomas Barkin for further direction.
Despite RBI intervention, the Indian Rupee is likely to experience slight depreciation in 2025, driven by volatile foreign portfolio investment flows and a potentially stronger US dollar. State-run banks have been observed selling USD in significant amounts, while the Indian HSBC Manufacturing PMI hit a 2024 low in December. This weaker figure indicates a slowing trend in the industrial sector, with new orders expanding at their slowest rate in the year. On the other hand, the US Initial Jobless Claims for the past week saw a decline, which was below market expectations.
In terms of technical analysis, the USD/INR pair continues to trade with a negative bias, with an overbought RSI warranting caution for bulls. The pair remains in an uptrend, holding above the key 100-day Exponential Moving Average (EMA). However, the RSI indicates an overbought condition, suggesting a potential for further consolidation before any near-term appreciation. The first upside barrier for USD/INR is at the all-time high of 85.81, with a break above this level likely leading to the 86.00 psychological mark. On the downside, support levels are at 85.54, 85.00, and the 100-day EMA at 84.40.
The Reserve Bank of India (RBI) plays a crucial role in maintaining price stability and promoting economic growth. The RBI meets bi-monthly to discuss monetary policy and adjusts interest rates as needed to control inflation rates. When inflation is high, the RBI raises interest rates to curb spending, which can support the Rupee. Conversely, if inflation falls below target levels, rate cuts may be implemented to encourage lending, which could have a negative impact on the Rupee. Additionally, the RBI actively intervenes in the foreign exchange markets to keep the exchange rate stable and protect importers and exporters from currency risks during periods of volatility.
In conclusion, the Indian Rupee is facing downward pressure due to various domestic and global factors, including USD strength and concerns about India’s economic growth. While the RBI may intervene to provide temporary relief, the Rupee is expected to experience slight depreciation in the future. Traders are closely monitoring key economic indicators and speeches for further clarity on the Rupee’s direction. Additionally, the RBI’s role in maintaining price stability and exchange rate predictability is essential for the overall health of India’s economy.
