The Indian Rupee (INR) continues to struggle, nearing an all-time low on Tuesday, as persistent foreign fund outflows and a subdued trend in domestic equities exert downward pressure. Additionally, renewed demand for the US Dollar (USD) from oil companies and foreign banks has further contributed to the INR’s weakness.
Despite the ongoing depreciation, the INR’s downside could be limited by falling crude oil prices and the potential for foreign exchange interventions by the Reserve Bank of India (RBI). Traders are also awaiting the release of India’s October Consumer Price Index (CPI), due later on Tuesday, which could offer further insight into inflationary trends in the country. On the US front, speeches from Federal Reserve officials Christopher Waller, Thomas Barkin, Neel Kashkari, and Patrick Harker are set to influence market sentiment ahead of Wednesday’s highly anticipated October CPI data from the US.
Foreign Outflows Keep Pressure on INR
The Indian Rupee has come under significant strain due to foreign investor withdrawals, with over $2.5 billion exiting Indian equities so far this month, adding to the $11 billion pulled out in October. The outflows have added to the downward pressure on the local currency, with the INR hitting a record low of 84.38 against the USD on Monday.
Despite these challenges, market experts suggest that the Reserve Bank of India (RBI) may cap further depreciation of the INR. Amit Pabari, Managing Director of CR Forex Advisors, indicated that in the medium term, the INR is expected to trade within the 83.80 to 84.50 range, supported by the RBI’s forex reserves. However, India’s foreign exchange reserves declined by $2.675 billion to $682.13 billion for the week ending November 1, signaling that the RBI is actively managing the currency’s movement.
The Indian Rupee’s outlook remains uncertain, with analysts suggesting that a potential depreciation of 8%-10% could occur should Donald Trump return to power, further pressuring the INR against the USD.
Inflation, Fed Policy, and USD Outlook in Focus
India’s October CPI is expected to show a slight increase, with a projected 5.80% year-on-year rise compared to 5.49% in September. A higher-than-expected CPI could add to the pressure on the INR, as it may prompt more hawkish monetary policy expectations.
Meanwhile, US Federal Reserve officials’ comments, as well as the markets’ expectations for a possible 25 basis point rate cut in December, will be crucial in shaping the outlook for the USD/INR pair. According to the CME FedWatch Tool, markets have priced in a 65.3% chance of a 25 basis point cut by the Fed in December, down from 75% last week, which could potentially weaken the US Dollar in the short term.
Technical Outlook: USD/INR Remains Bullish, Caution Advised
From a technical perspective, the USD/INR pair continues to maintain a strong uptrend, holding above the key 100-day Exponential Moving Average (EMA) on the daily chart. However, the 14-day Relative Strength Index (RSI) has risen above 70, signaling an overbought condition and suggesting that a period of consolidation may be in order before further appreciation.
The immediate resistance for USD/INR is at the 84.50 level. A breakout above this level could pave the way for a move towards the psychological 85.00 mark. On the downside, a break below the lower limit of the current trend channel around 84.05-84.10 could see the pair drop towards the 100-day EMA at 83.84. Further declines could bring the September 24 low of 83.46 into focus.
As market participants await key economic data from India and the US, the outlook for the Indian Rupee remains fragile, with ongoing concerns about foreign outflows and global economic uncertainties.
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