The Indian Rupee (INR) faced additional pressure on Friday, reaching new record lows during the previous session, as domestic equities remained weak and foreign fund outflows continued unabated. The INR’s decline was further exacerbated by rising crude oil prices, adding to the currency‘s woes.
The US Dollar (USD) is expected to strengthen, driven by anticipated populist measures under former President Donald Trump. These measures could lead to higher borrowing, inflation, and US yields, potentially putting further downward pressure on the INR. However, the Reserve Bank of India (RBI) is expected to intervene by selling USD in the market to mitigate excess volatility and contain the currency’s slide.
Traders are awaiting key economic data, including the advanced US Michigan Consumer Sentiment report for November, as well as a speech from Federal Reserve Governor Michelle Bowman later in the day.
Market Dynamics and Outlook for the INR
Foreign investors have pulled out more than $1.5 billion from Indian equities in November, adding to a hefty $11 billion in outflows recorded last month. However, according to a report by Emkay, India is in a relatively stronger position compared to many other Asian economies, largely due to its lower dependence on trade with China.
On Thursday, the Federal Open Market Committee (FOMC) lowered its benchmark overnight borrowing rate by 25 basis points (bps), bringing the target range to 4.50%-4.75%. Fed Chair Jerome Powell remarked that although the US central bank is cutting interest rates, monetary policy remains tight, and inflation is nearing the Fed’s 2% target. The probability of a quarter-point rate cut in December now stands at over 68%, according to the CME FedWatch Tool, while the odds of a pause have fallen to nearly 32%.
In other US data, initial jobless claims for the week ending October 25 rose to 221,000, matching expectations but up from the previous week’s revised figure of 218,000.
Technical Analysis: USD/INR Outlook Remains Bullish
The USD/INR pair continues to trend upward, supported by a position above the key 100-day Exponential Moving Average (EMA). The 14-day Relative Strength Index (RSI) is currently hovering around 75, indicating overbought conditions, suggesting that the pair may undergo some consolidation before continuing its short-term appreciation.
On the upside, a break above the upper boundary of the ascending trend channel at 84.30 could lead to further resistance at 84.50, followed by the psychological 85.00 level. Conversely, a dip below the trend channel’s lower boundary near 84.05-84.10 could trigger selling pressure toward the 100-day EMA at 83.82, with further support seen at 83.46, the low from September 24.
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