The Indian Rupee (INR) weakened further on Friday, nearing its all-time low against the US Dollar (USD). The currency faced pressure from rising US Treasury bond yields, end-of-month USD demand, and significant Foreign Portfolio Investor (FPI) outflows from domestic equities. Despite these challenges, the Reserve Bank of India (RBI) is expected to continue intervening in the foreign exchange market, selling USD to curb excessive INR depreciation in an environment of global volatility.
Key Data in Focus
Later today, India’s fiscal deficit data for October and GDP growth figures for Q2 FY25 (July–September 2024) will be closely watched. Analysts expect GDP growth to meet the RBI’s target of 7.0%. A stronger-than-anticipated outcome could offer some respite for the struggling INR.
However, a Reuters poll suggests India’s economy may have grown at its slowest pace in 18 months due to subdued consumption offsetting robust government spending.
FPI Outflows Amplify INR Weakness
Foreign investors withdrew approximately $1.4 billion from Indian equities on Thursday, contributing to a 1.5% decline in the BSE Sensex index. Over the past month, FPIs have pulled $11 billion from Indian stocks, reflecting dampened sentiment in the local market.
Monetary Policy Outlook
The RBI is expected to maintain its policy rate during its December 6 meeting amid persistently high consumer inflation. Meanwhile, markets have priced in a 66.5% probability that the US Federal Reserve will cut rates by 25 basis points in December, up from 55.7% prior to the release of the Core Personal Consumption Expenditure (PCE) Price Index data.
USD/INR Maintains Bullish Momentum
The USD/INR pair continues its upward trajectory, holding above the critical 100-day Exponential Moving Average (EMA) on daily charts. The 14-day Relative Strength Index (RSI) remains strong at 62.90, signaling sustained support.
Key resistance for the pair lies in the 84.50–84.55 range. A breakout above this level could attract momentum traders, pushing USD/INR toward the psychological barrier of 85.00.
On the downside, sustained trading below 84.27, the lower trend channel limit, could lead to a retest of 83.96, aligning with the 100-day EMA. A breach of this support may signal further declines, with the next level at 83.65, marking the low from August 1.
Outlook
The INR remains vulnerable amid persistent external and domestic challenges. Upcoming economic data, including GDP growth figures and fiscal deficit updates, will play a critical role in shaping near-term sentiment. Meanwhile, sustained FPI outflows and strong USD demand could keep the INR under pressure.
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