The Indian Rupee (INR) is under pressure on Monday, trading lower amid a combination of factors including a weaker Chinese Yuan, rising demand for the US Dollar (USD) from importers and local oil companies, and concerns about slowing domestic economic growth. Despite this, expectations of increased government spending and potential foreign exchange interventions by the Reserve Bank of India (RBI) may help mitigate further losses for the INR in the near term.
Traders are closely watching the release of the US Consumer Price Index (CPI) report for November, due Wednesday, with expectations that inflation will rise to 2.7% year-on-year, up from 2.6% in October. This data could be a key factor in determining the Federal Reserve’s decision on a third consecutive interest rate cut. In India, the CPI inflation data will be published on Thursday, adding to market scrutiny of inflation dynamics.
The Indian Rupee’s decline comes as the RBI keeps its benchmark repo rate unchanged at 6.50% during its October 2024 meeting. RBI Governor Shaktikanta Das reaffirmed the central bank’s commitment to balancing inflation and growth, emphasizing that sustainable price stability is crucial for long-term economic strength.
India’s foreign exchange reserves saw a modest increase of $1.51 billion, reaching $658.09 billion for the week ending November 29, according to RBI data. However, analysts remain cautious about the outlook for Asian currencies. MUFG Bank analysts expressed doubts about further strengthening of Asian currencies, especially in the first half of 2025, given potential tariff actions under a potential second term of US President Donald Trump.
In the US, the November Nonfarm Payrolls (NFP) report showed stronger-than-expected job growth of 227,000, up from 36,000 in October, with the unemployment rate rising slightly to 4.2%. Meanwhile, annual wage inflation held steady at 4.0% year-on-year, exceeding expectations. The positive jobs data has bolstered speculation that the Federal Reserve may proceed with a 25 basis point rate cut at its December meeting, with the CME FedWatch tool indicating an 85.1% chance of the rate reduction.
USD/INR Outlook Remains Bullish
The outlook for the USD/INR remains positive, with the pair trading above the key 100-day Exponential Moving Average (EMA) on the daily chart. The 14-day Relative Strength Index (RSI) is also indicating continued upward momentum, with a reading of 65.90, suggesting further upside potential.
Key resistance levels for USD/INR are seen at the all-time high of 84.77, followed by the psychological level of 85.00, and then 85.50. On the downside, a break below the support level at 84.60 could expose the November 25 low of 84.22, with further downside risks at the 84.05-84.00 zone, which aligns with both the 100-day EMA and a key psychological level.
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