The Indian Rupee (INR) weakened on Wednesday, facing selling pressure as the US Dollar (USD) strengthened. Importers’ renewed demand for USD, coupled with rising geopolitical tensions, continued to weigh on the local currency. Russian officials reported that Ukraine used US-supplied ATACMS missiles to strike Russian territory for the first time, while Russian President Vladimir Putin approved an updated nuclear doctrine. These developments have heightened market anxieties, adding to the INR’s vulnerability.
Additionally, persistent foreign portfolio investment (FPI) outflows have contributed to the rupee’s decline. However, significant depreciation of the INR may be capped, as the Reserve Bank of India (RBI) is expected to intervene by selling USD to stabilize the currency.
USD Price Dynamics Key for INR, Geopolitical Tensions Persist
With little major economic data released from the US or India, the price dynamics of the USD remain the primary driver for USD/INR. Federal Reserve officials, including Lisa Cook and Michelle Bowman, are scheduled to speak later on Wednesday, which could provide further insight into the Fed‘s future policy direction.
Nitin Agarwal, head of treasury at ANZ India, noted that while a mild USD weakness may not significantly benefit the rupee, a 2-3% decline in the dollar index could lead to a modest INR appreciation of around 0.5%. The outlook for foreign portfolio investment (FPI) into India remains positive, with an expected inflow of USD 20-25 billion in FY25, according to Bank of Baroda.
Meanwhile, the likelihood of a 25 basis point interest rate cut by the Fed in December has decreased, with market expectations dropping to 59% from 76.8% a month ago, according to the CME FedWatch Tool. In the US, housing data showed a decline in building permits and housing starts, which added to uncertainty about the economic outlook.
USD/INR Remains Bullish Amid Technical Support
Despite the INR’s weakness on the day, the bullish outlook for the USD/INR pair remains intact. The pair continues to hold above the ascending channel support on the daily chart, signaling upward momentum. The 14-day Relative Strength Index (RSI), standing near 65.55, further supports the upside bias.
The immediate resistance for USD/INR is at the all-time high of 84.45. A break above this level could open the path toward the psychological 85.00 mark. On the downside, a decline below the 84.35 support level could attract selling pressure, potentially bringing the pair back to the 84.00-83.90 region, where further support from the 100-day EMA could limit downside movement.
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