The Indian Rupee has fallen to a new record low in Friday’s early European session due to a strong US Dollar and increased demand for USD from importers. The Reserve Bank of India is expected to intervene in the foreign exchange market to prevent further depreciation of the local currency. Despite the pressure on the INR, routine intervention by the RBI could help limit its losses. The US Goods Trade Balance for November is set to be released later on Friday, with low trading volumes expected ahead of the New Year holiday next week.
India’s economy is projected to grow at around 6.5% in fiscal year 2024/25, towards the lower end of the 6.5%-7.0% projection by the finance ministry’s monthly economic report for November. Foreign Institutional Investors have been net sellers in the capital markets, with shares worth ₹2,454.21 crore being offloaded on Tuesday. Importers have been active in the trading session, while trading volumes have been relatively low towards the end of the year. The INR is expected to face pressure due to slowing FDI flows, weak manufacturing export growth, and narrowing policy rate differentials with the US, according to a recent Standard Chartered Bank report.
Despite the challenges facing the Indian Rupee, the USD/INR pair remains in a constructive outlook. Technically, there is a strong uptrend on the daily timeframe, with the pair well-supported above the key 100-day Exponential Moving Average. However, the 14-day Relative Strength Index suggests an overbought condition, indicating the possibility of additional consolidation before any short-term USD/INR appreciation. The ascending channel upper boundary at 85.35 acts as an immediate resistance level for the pair, with potential support at the 85.05-85.00 region. A break below this level could trigger momentum sellers to take the price towards the 100-day EMA at 84.27.
In conclusion, the Indian Rupee is facing pressure from a firm USD and increased USD demand from importers, foreign investors, and oil-related companies. The RBI is expected to intervene in the foreign exchange market to prevent further depreciation of the INR. India’s economy is projected to grow at around 6.5% in fiscal year 2024/25, towards the lower end of the projection. Despite the challenges, the USD/INR pair remains in a constructive outlook, with technical indicators suggesting potential for short-term appreciation. Traders should keep an eye on key levels such as the upper boundary of the ascending channel and the 100-day EMA for potential trading opportunities.
