The Indian Rupee (INR) showed signs of recovery on Tuesday after hitting a record low in the previous session, with support likely coming from the Reserve Bank of India’s (RBI) intervention. However, the local currency remains vulnerable, under pressure from a broadly stronger US Dollar (USD) and other domestic and international challenges. A sharp decline in domestic equities and ongoing foreign capital outflows continue to weigh on the INR’s performance.
Market participants are closely watching developments surrounding U.S. President-elect Donald Trump’s tariff plans. If U.S. tariffs are less stringent than initially promised during his campaign, with a focus on specific critical sectors, analysts believe the global growth outlook could improve, potentially weakening the USD.
Economic data due later this week, including the U.S. ISM Services Purchasing Managers’ Index (PMI) and the December Federal Reserve meeting minutes, will be pivotal in shaping investor sentiment. The market’s primary focus will be on Friday’s U.S. Nonfarm Payrolls (NFP) report, which could influence the Fed’s future policy decisions.
INR Faces Domestic Struggles, Gains Some Ground
Despite these pressures, the Indian Rupee managed to claw back some losses, aided by RBI intervention in the currency markets. Still, the currency remains fragile amid global uncertainty and concerns over the U.S. Dollar’s strength. Domestic economic data also provided a mixed outlook. The HSBC final India Services PMI for December eased to 59.3, down from 60.8 in the preliminary estimate, falling short of the consensus estimate of 60.5. However, forward-looking indicators suggest that India’s services sector could maintain robust growth in the near term, according to HSBC economist Ines Lam.
On the global front, President-elect Trump denied a report suggesting that his administration might scale back its tariff plans to focus only on key sectors, a potential move that could influence USD sentiment. Additionally, Fed Governor Lisa Cook signaled caution in further interest rate cuts, citing resilience in the labor market and persistent inflationary pressures.
The U.S. ISM Services PMI is expected to improve to 53.0 in December, up from 52.1 in November, which could provide further insight into the strength of the U.S. economy.
USD/INR Technical Outlook: Caution Amid Overbought Conditions
From a technical standpoint, the USD/INR pair remains on a bullish trajectory, trading above the key 100-day Exponential Moving Average (EMA) and having broken through an ascending trend channel over the past week. Despite this bullish momentum, the 14-day Relative Strength Index (RSI) has surpassed the 70.00 threshold, indicating overbought conditions and raising the possibility of short-term consolidation.
The immediate upside resistance for USD/INR stands at the all-time high of 85.84. A sustained move above this level could pave the way for the psychological 86.00 mark. On the downside, initial support is seen at the January 6 low of 85.60, followed by stronger support at 85.00 and 84.45, where the 100-day EMA is located.
As global and domestic factors continue to influence market sentiment, traders will keep a close eye on upcoming economic releases and developments in U.S. trade policy.
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