The Indian Rupee (INR) is trading in negative territory on Wednesday, following a fresh all-time low in the previous session. The currency is under significant pressure due to substantial foreign institutional outflows and increased demand for the US Dollar (USD).
Despite the strengthening Greenback and continued outflows from Indian equities, the downside for the INR may be capped by routine interventions from the Reserve Bank of India (RBI), which has been actively selling USD to stabilize the currency. Traders are now focused on the release of the US October Consumer Price Index (CPI) later on Wednesday, as well as speeches from several Federal Reserve officials, including John Williams, Lorie Logan, Jeffrey Schmid, and Alberto Musalem, which could offer further insight into US monetary policy.
Indian Inflation and Foreign Outflows Weigh on the Rupee
India’s retail inflation, based on the Consumer Price Index (CPI), surged to a 14-month high of 6.21% year-on-year (YoY) in October, up from 5.49% in September and exceeding the expected 5.81%. A significant contributor to the rise was food inflation, which jumped to 10.87% from 9.24% in September, putting additional pressure on domestic prices. This inflationary spike comes amid a backdrop of heightened foreign investor withdrawals, with nearly $3 billion exiting Indian stocks in November, following $11 billion in outflows in October.
Meanwhile, India’s industrial production showed a positive surprise, growing by 3.1% YoY in September, rebounding from a decline of 0.1% in August and exceeding market expectations of 2.5%. Despite this, the Indian Rupee remains vulnerable to global market dynamics and domestic inflationary pressures.
US Dollar Outlook Supports USD/INR
The US Dollar (USD) continues to maintain its strength, particularly in light of Federal Reserve officials’ recent remarks. Minneapolis Fed President Neel Kashkari emphasized that while the US central bank feels confident about its ongoing efforts to combat inflation, it is still too early to declare victory over inflation. Richmond Fed President Tom Barkin also noted that inflation may remain above the Fed’s target levels, keeping the USD supported.
The outlook for the USD/INR pair remains constructive in the longer term. Technically, the pair continues to trade above the key 100-day Exponential Moving Average (EMA), signaling positive momentum. However, the 14-day Relative Strength Index (RSI) has surpassed the 70 threshold, indicating that the pair may be in overbought territory and could face consolidation before further gains.
Key Levels for USD/INR
Immediate resistance for USD/INR is seen at 84.50. A break above this level could trigger additional buying pressure, pushing the pair towards the psychological 85.00 level. On the downside, sustained trading below the previous resistance-turned-support level at 84.30 could expose further declines to the 84.05-84.10 range, which marks the lower limit of the current trend channel and the high from October 11. The next key support to watch is 83.85, the 100-day EMA, which could act as a significant filter for any further downside.
In the broader outlook, the USD/INR pair is expected to remain bullish in the longer term, driven by the ongoing strength of the USD and the structural challenges facing the Indian Rupee. However, near-term volatility and potential consolidation remain likely as traders await more clarity on US inflation data and Fed policy direction.
Related Topics:
