The Indian Rupee (INR) extended its decline on Friday, edging closer to a fresh all-time low. The local currency remains under significant selling pressure due to persistent strong demand for the US Dollar (USD) from importers, foreign investors, and oil-related companies.
Despite the ongoing weakness, the Reserve Bank of India (RBI) is expected to intervene as needed to help limit the INR’s losses. Later on Friday, the preliminary US Goods Trade Balance for November will be released, but trading volumes are likely to remain low ahead of next week’s New Year holiday.
INR Softens Amid Economic Challenges
India’s economy is forecasted to grow at around 6.5% in fiscal year 2024/25, slightly lower than the upper end of the 6.5%-7.0% projection, according to the finance ministry’s monthly economic report for November. Additionally, Foreign Institutional Investors (FIIs) were net sellers in Indian capital markets on Tuesday, offloading shares worth ₹2,454.21 crore, as per exchange data.
“Importers were particularly active in the session, although trading volumes were relatively low towards the year-end,” said a trader at a private bank.
A recent Standard Chartered Bank report highlighted several factors pressuring the INR, including slowing Foreign Direct Investment (FDI) flows, weak manufacturing export growth, and narrowing policy rate differentials with the US. The report predicts modest depreciation of the INR, forecasting it to reach 85.5 per US Dollar over the next 12 months.
In the US, weekly Initial Jobless Claims for the week ending December 21 declined to 219,000, below market expectations of 224,000, providing some positive sentiment for the USD.
USD/INR Outlook: Bullish Trend Holds, But Caution Warranted
Technically, the USD/INR pair remains in an uptrend, with the price supported above the 100-day Exponential Moving Average (EMA). However, the 14-day Relative Strength Index (RSI) is nearing 74.25, suggesting overbought conditions and the potential for consolidation before any further short-term appreciation in USD/INR.
For bullish traders, immediate resistance is found at 85.35, the upper boundary of the ascending trend channel. A sustained break above this level could lead to further upside, potentially pushing the pair to 85.50 and eventually to the psychological level of 86.00.
On the downside, support is seen in the 85.05-85.00 range, representing the lower boundary of the trend channel. A decisive break below this region could trigger further selling, pushing the pair towards the 84.27 level, where the 100-day EMA lies.
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