The Indian Rupee (INR) managed to recover some ground on Friday after hitting a record low in the previous session. Despite this rebound, the currency continues to face pressure from a stronger US Dollar (USD) and rising crude oil prices. Combined with persistent selling in domestic equities and significant foreign capital outflows, these factors may keep the INR under strain in the near term.
The Reserve Bank of India (RBI) could intervene in the foreign exchange market to prevent the INR from sliding further, particularly toward its historic low. Later today, traders will focus on key economic data, including India’s Industrial Output and Manufacturing Output for November. In the US, labor market indicators, including the Nonfarm Payrolls (NFP) report, Unemployment Rate, and Average Hourly Earnings, will be closely monitored.
Rupee Faces Persistent Downside Risks Amid Domestic Weakness and Global Factors
Despite the INR’s recent recovery, market experts remain cautious about its near-term outlook. “We expect the rupee to trade with a negative bias due to weak domestic markets, a stronger USD, and rising US Treasury yields,” said Anuj Choudhary, Research Analyst at Mirae Asset Sharekhan. Elevated crude oil prices and continued foreign institutional investor (FII) outflows are additional headwinds for the domestic currency.
Foreign investors have pulled around $2 billion from India’s stock market since the start of the year, further complicating the INR’s trajectory. However, some support for the rupee could come from potential RBI interventions at lower levels. Choudhary forecasts that the USD/INR pair will trade within a range of Rs 85.75 to Rs 86.10 in the near term, depending on developments in the broader market and economic indicators, including the US Nonfarm Payrolls report.
In terms of India’s economic growth, the United Nations World Economic Situation and Prospects (WESP) report forecasts a growth rate of 6.6% for 2025.
US Federal Reserve’s Stance Adds to Market Uncertainty
On the US front, Federal Reserve officials have indicated that economic uncertainties will lead to a cautious approach in future rate reductions. Boston Fed President Susan Collins emphasized the need for caution, while Philadelphia Fed President Patrick Harker suggested that rate cuts are still on the table, albeit not immediately necessary. Kansas City Fed President Jeff Schmid also supports slowing the pace of rate cuts, but only with a sustained shift in economic data. Fed Governor Michelle Bowman echoed the sentiment, stating that interest rates are likely to remain on hold until inflation shows a clear downward trend.
Technical Outlook: USD/INR to Remain Bullish, But Overbought Conditions Limit Upside
From a technical perspective, the outlook for USD/INR remains bullish, with the pair holding above the key 100-day Exponential Moving Average (EMA). However, the Relative Strength Index (RSI) is above the 70.00 threshold, indicating that the pair is in overbought territory. This suggests that consolidation may occur before any further upside movement.
Immediate resistance for the pair is located around the 85.95-86.00 level, marking the all-time high and a psychological barrier. If the USD/INR pair manages to break above this resistance, the next target could be 86.50. On the downside, initial support is seen at 85.65, with further potential declines to 84.51, the 100-day EMA, if bearish momentum takes hold.
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