The Indian Rupee (INR) continues its downward slide, approaching a near-record low on Friday, as persistent demand for the US Dollar (USD) from importers, foreign investors, and oil-related firms weighs heavily on the local currency.
Despite this, the Reserve Bank of India (RBI) may step in with routine interventions to mitigate further depreciation of the INR. Market attention also turns to the release of the US Goods Trade Balance for November later today, although trading volumes are expected to remain subdued due to the approaching New Year holiday.
Economic Growth Outlook and Investor Activity
India’s economy is projected to grow at around 6.5% in fiscal year 2024/25, according to the Ministry of Finance’s November report, placing growth closer to the lower end of the 6.5%-7.0% forecast. Meanwhile, Foreign Institutional Investors (FIIs) were net sellers in the capital markets on Tuesday, offloading shares worth ₹2,454.21 crore, according to exchange data.
A trader from a private bank commented that importers were particularly active during the session, although overall trading volumes were lower due to the year-end lull.
Challenges to INR’s Stability
The INR faces mounting pressure from a combination of domestic and international factors, including sluggish Foreign Direct Investment (FDI) flows, weak manufacturing exports, and the narrowing policy rate differential with the US. A recent report from Standard Chartered Bank projects the INR to depreciate modestly to 85.5 per USD within the next year.
Further complicating the outlook, the US Department of Labor reported a decrease in initial jobless claims for the week ending December 21, falling to 219,000, down from 220,000 the previous week and better than market expectations.
Technical Outlook for USD/INR
From a technical perspective, the USD/INR pair shows a strong upward trend, with support maintained above the key 100-day Exponential Moving Average (EMA). However, the 14-day Relative Strength Index (RSI) sits at 74.25, indicating overbought conditions and suggesting potential consolidation before any further short-term appreciation.
For the bulls, the immediate resistance level is at 85.35, the upper boundary of the ascending channel. If sustained trading above this level occurs, it could trigger more buying, pushing the pair toward 85.50 and possibly even the psychological 86.00 level.
On the other hand, potential support for the USD/INR lies between the 85.05-85.00 range, the lower boundary of the trend channel. A decisive break below this level could prompt momentum sellers to push the pair toward 84.27, where the 100-day EMA is positioned.
Related Topics:
