The Indian Rupee (INR) has been trading in negative territory during Tuesday’s early European session, falling to its weakest closing level in the previous session. The decline in the offshore Chinese Yuan and a spike in USD bids are contributing to the INR’s weakness. In addition, the slower pace of Fed rate cuts and the expectation of higher US federal policy rates are also dragging the INR lower. The overall sentiment remains bearish for the INR, with the Reserve Bank of India’s (RBI) intervention in NDF markets being a key factor in preventing sharp depreciation. With the New Year holiday approaching, traders are keeping an eye on India’s Federal Fiscal Deficit for November and the Q3 Trade Deficit, which are the highlights for the day.
Analysts believe that the RBI is unlikely to change its strategy of intervening in the currency market to ensure stability of the INR. The central bank’s actions are expected to be driven by the prevailing situation and may intervene to curb volatility. India’s Current Account Deficit is forecasted to remain at 1.1% of GDP in FY25, according to a report by ICICI Bank. The USD/INR pair is expected to trade in a range of 85.30-85.60, with dips seen as buying opportunities. Foreign portfolio investors have been selling over $10 billion of local stocks and bonds on a net basis this quarter. Economic indicators like the US Pending Home Sales and the Chicago Purchasing Managers’ Index have also impacted the USD/INR pair.
Technically, the USD/INR pair maintains a bullish bias in the longer term, with strong uptrend support above the key 100-day Exponential Moving Average (EMA). However, the 14-day Relative Strength Index indicates an overbought condition, suggesting consolidation before any near-term appreciation of USD/INR. The first upside barrier for the pair is at the all-time high of 85.81, with potential buyers coming in at the 86.00 psychological level. On the downside, the 85.45 resistance-turned-support level is the initial target, followed by 85.00 and the key 84.32 contention level.
The Indian Rupee is influenced by various external factors, including the price of Crude Oil, the value of the US Dollar, and foreign investment levels. The RBI actively intervenes in FX markets to maintain stability in the exchange rate and adjusts interest rates to control inflation. Macroeconomic factors such as inflation, interest rates, GDP growth rate, balance of trade, and foreign investment inflows also play a significant role in determining the value of the Rupee. Higher inflation can have negative implications for the Rupee, while higher interest rates can be positive. A favorable trade balance and increased overseas investment can strengthen the Rupee.
In conclusion, the Indian Rupee remains vulnerable to external challenges such as changes in the global economic outlook, trade tensions, and geopolitical factors. The RBI’s intervention in currency markets, coupled with economic indicators and investor sentiment, will continue to impact the performance of the INR. Traders are advised to closely monitor key economic data releases and geopolitical developments to anticipate potential shifts in the USD/INR pair.
