The Indian Rupee (INR) edged lower to approach a record low on Thursday, weighed down by month-end demand for the US Dollar (USD) from importers. The ongoing speculation about aggressive trade policies under US President-elect Donald Trump, along with expectations that the Federal Reserve (Fed) may slow its pace of rate cuts, is adding pressure on the INR in the short term.
Despite the downward pressure on the INR, the Reserve Bank of India (RBI) could intervene by selling USD, potentially limiting further losses for the local currency. As US markets were closed for the Thanksgiving holiday, traders are now focused on upcoming economic data, including the Indian Federal Fiscal Deficit for October and GDP growth for Q2 FY25 (July-September 2024), which is due on Friday.
INR Weakness Driven by USD Demand and Trump Trade Policy Uncertainty
“The Rupee lost the gains it made on Wednesday, falling to 84.48 before recovering slightly as the RBI sold dollars,” said Anil Kumar Bhansali, Head of Treasury at Finrex Treasury Advisors. “However, month-end demand for USD pushed the rupee lower again.”
The INR’s struggle also comes amid a strong US economy. US inflation, as measured by the Personal Consumption Expenditures (PCE) Price Index, rose by 2.3% year-over-year in October, up from 2.1% in September, matching expectations. The core PCE, which excludes food and energy prices, increased by 2.8%, slightly above the previous month’s 2.7%. Additionally, the US economy grew at a robust 2.8% annual rate in the third quarter, according to the Commerce Department’s latest GDP estimate.
Fed Rate Cut Expectations Fuel USD Strength
Despite the inflation data, futures markets are now pricing in a 66.5% probability that the Fed will reduce interest rates by 25 basis points in December, up from 55.7% before the PCE release. However, expectations suggest the Fed will leave rates unchanged in both January and March 2025.
Technical Outlook: USD/INR’s Uptrend Remains Intact
The USD/INR pair continues to show strength, holding above the key 100-day Exponential Moving Average (EMA) and remaining within an ascending trend channel on the daily chart. The 14-day Relative Strength Index (RSI) is above the midline at 58.0, signaling bullish sentiment for the near term.
Key resistance for USD/INR is seen at the 84.50-84.55 region, which marks both the all-time high and the upper boundary of the trend channel. A breakout above this level could push the pair toward the psychological 85.00 mark.
On the downside, if the pair drops below the lower boundary of the trend channel at 84.24, support may emerge at 83.95, the 100-day EMA, with further support at 83.65, the low from August 1.
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