The Indian Rupee (INR) managed to recover some of its losses on Monday after hitting a record low in the previous session. The Reserve Bank of India (RBI)’s routine interventions, including offering US Dollars (USD), likely played a role in curbing the INR’s downward momentum.
The stronger-than-expected US employment data released on Friday has reinforced market expectations that the US Federal Reserve (Fed) may not cut interest rates as aggressively this year. This outlook provides support to the US Dollar (USD), which in turn exerts pressure on the Indian Rupee. The INR also faces challenges from significant outflows from domestic equities, hawkish statements from the Fed, and rising crude oil prices, all of which contribute to its weakness, particularly as India is the world’s third-largest oil consumer.
Later in the day, traders will focus on India’s Consumer Price Index (CPI), which is expected to show a year-on-year increase of 5.3% in December. On the US side, the Monthly Budget Statement is due for release, which could further impact the USD/INR dynamics.
Rupee Faces Challenges as RBI Prepares to Move Away from USD Peg
Analysts from Gavekal Research have suggested that the Indian Rupee may fall past the 90 per Dollar mark this year, as the Reserve Bank of India is expected to move away from the currency’s implicit quasi-peg to the USD.
US Nonfarm Payrolls (NFP) surged by 256,000 in December, significantly exceeding expectations of 160,000. The Unemployment Rate dipped to 4.1% from 4.2% in November. Meanwhile, US wage inflation moderated slightly to 3.9% from 4.0%. Despite strong labor market data, Fed officials have suggested a cautious approach to rate cuts, with some expressing concern about inflation remaining stuck at elevated levels.
Technical Outlook: USD/INR Remains Bullish but Caution Warranted
The USD/INR pair continues to trend higher, holding above the 100-day Exponential Moving Average (EMA) on the daily chart. However, the Relative Strength Index (RSI) has surpassed the 70.00 threshold, signaling an overbought condition and suggesting that consolidation may follow.
The next key resistance for the USD/INR pair is the all-time high of 86.15. If the pair manages to sustain above this level, further upside toward 86.50 could be possible. On the downside, initial support lies at 85.85, the low of January 10, followed by 85.65 and the psychological 85.00 level, which could act as a significant support zone.
While the uptrend in USD/INR remains intact, caution is advised as the overbought conditions suggest a possible correction before further gains.
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