The Indian Rupee (INR) lost momentum on Thursday, weighed down by heightened demand for the US Dollar (USD) from importers, rising 10-year US Treasury yields, and concerns over India’s slowing economic growth.
India’s manufacturing sector registered its weakest growth of 2024 in December, with the Manufacturing Purchasing Managers’ Index (PMI) falling to 56.4, down from 57.4 in November and lower than the anticipated 57.8. This disappointing PMI data contributed to the INR’s weakening.
Despite the bearish sentiment surrounding the INR, its downside may be limited as the Reserve Bank of India (RBI) is expected to intervene in the currency market to curb volatility. Market participants will be closely monitoring the upcoming release of the US weekly Initial Jobless Claims and the S&P Global Manufacturing PMI for December.
INR Faces Downward Pressure Amid Domestic and Global Factors
The INR remains vulnerable to further downward pressure due to strong demand for USD and robust US yields, according to Anil Kumar Bhansali, Head of Treasury at Finrex Treasury Advisors LLP. Reuters reports that the INR’s bearish bias is driven by a combination of factors, including the USD maintaining strength near 108.48, concerns over India’s slowing economic growth, and a widening trade deficit.
India’s fiscal deficit for the April-November period of FY25 stood at 8.47 trillion rupees ($98.90 billion), or 52.5% of the estimate for the financial year, widening from 50.7% in the same period last year. India’s GDP growth is projected at 6.6% for 2024-25, with 6.9% expected for the first quarter of 2025-26, according to the Reserve Bank of India.
USD/INR Technical Outlook: Bullish but Overbought
On the technical front, the USD/INR pair remains in a positive territory, having broken above the ascending trend channel in the past week. The pair is holding above the key 100-day Exponential Moving Average (EMA), which supports the bullish outlook. However, the 14-day Relative Strength Index (RSI) is above 70, indicating that the pair may be overbought, suggesting potential consolidation before any further upward movement.
The immediate resistance for USD/INR is at the all-time high of 85.81. A break above this level could pave the way for a move toward the psychological resistance level of 86.00. On the downside, the first support is at 85.50, with further support seen at the round figure of 85.00 and the 100-day EMA at 84.37.
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