The Indian Rupee (INR) remained stable in Monday’s Asian session after closing at a record low in the previous session. Factors such as the weakening Chinese Yuan, continued demand for the US Dollar (USD), and the threat of tariffs from US President-elect Donald Trump’s administration are causing vulnerability for the INR. The Reserve Bank of India (RBI) is expected to intervene by selling USD to prevent further depreciation of the INR. Traders are eagerly awaiting the release of India’s HSBC Composite and Services Purchasing Managers Index (PMI) data for December. Additionally, the market is also anticipating the release of S&P Global Composite and Services PMI data for December in the US. Furthermore, Fed’s Lisa Cook is scheduled to speak later in the day.
Amidst global developments, the INR is expected to experience slight depreciation in 2025 driven by volatile foreign portfolio investment (FPI) flows and a potentially stronger USD, according to a report by the Bank of Baroda. The US Manufacturing PMI for December exceeded market expectations, climbing to 49.3 from 48.4 in the prior month. San Francisco Fed President Mary Daly emphasized the persistence of inflation remaining above the 2% target set by the Fed. Additionally, Fed Governor Adriana Kugler acknowledged the issue of high inflation and stated that the central bank is working to address it. Richmond Fed President Thomas Barkin highlighted that the Fed’s policy rate should remain restrictive until inflation returns to the 2% goal.
The technical outlook for the USD/INR pair suggests a bullish sentiment, with the pair breaking above the ascending trend channel and well supported by the key 100-day Exponential Moving Average (EMA). However, the 14-day Relative Strength Index (RSI) is overbought, indicating the need for caution among bulls. The next resistance level for the pair is the all-time high of 85.81, with potential further upside towards the 86.00 psychological mark upon a decisive break above this level. On the downside, the resistance-turned-support level of 85.55 serves as an initial support level, followed by 85.00 and 84.43 which is the 100-day EMA.
The Indian Rupee (INR) is highly sensitive to external factors, such as the price of Crude Oil, the value of the US Dollar, and foreign investment levels. The Reserve Bank of India (RBI) actively intervenes in the foreign exchange (FX) markets to maintain a stable exchange rate and adjusts interest rates to control inflation. Macroeconomic factors like inflation, interest rates, economic growth, trade balance, and foreign investment inflows also influence the value of the Rupee. Higher inflation can lead to currency devaluation, while higher interest rates are usually positive for the Rupee. A risk-on environment can attract more foreign investment, benefiting the Rupee.
In conclusion, the Indian Rupee’s stability in the face of global economic dynamics reflects the complex interplay of various factors. As the market awaits key economic data releases and speeches by Fed officials, traders will likely monitor the USD/INR pair for potential movements. The ongoing support from the RBI and the technical indicators point towards a cautious optimism for the Rupee’s performance in the near term. However, uncertainties surrounding global economic trends and geopolitical developments remain as potential risks that could impact the INR’s trajectory. Investors should therefore stay informed and vigilant in navigating the currency markets amidst these ever-evolving scenarios.
