The Indian Rupee (INR) regained some ground on Tuesday after hitting a fresh all-time low in the previous session. The Reserve Bank of India (RBI) is expected to intervene in the forex market to curb excessive depreciation by selling US Dollars in spot and forward markets. However, the INR remains under pressure due to rising crude oil prices, significant foreign capital outflows from Indian equities, and a stronger US Dollar (USD).
Rupee Under Pressure Amid External and Domestic Challenges
The INR’s decline is exacerbated by external factors, including robust US employment data that has bolstered expectations of fewer rate cuts by the US Federal Reserve in 2025. Domestically, India faces rising food inflation and dwindling forex reserves, further straining the local currency.
Inflation Trends: India’s Consumer Price Index (CPI) inflation eased to 5.22% in December from 5.48% in November, slightly below market expectations of 5.3%. However, the Consumer Food Price Index (CFPI) surged to 8.39% YoY, indicating persistent pressure on food prices.
Foreign Outflows: Global investors have withdrawn approximately $2 billion from Indian equities and sold $705.5 million worth of fixed-income securities on January 8 alone.
Forex Reserves: RBI data showed that India’s forex reserves fell by $5.693 billion to $634.585 billion for the week ending January 3.
Market Focus on Key Economic Data
Traders are awaiting India’s Wholesale Price Index (WPI) inflation data and the US Producer Price Index (PPI) report, both due later in the day, for further cues. Additionally, remarks by Fed Kansas City President Jeff Schmid are expected to provide insights into the US central bank‘s policy trajectory.
USD/INR Outlook: Cautious Bullishness Amid Overbought Conditions
The USD/INR pair remains bullish, supported by a series of higher highs and higher lows above the key 100-day Exponential Moving Average (EMA). However, the 14-day Relative Strength Index (RSI) has entered overbought territory, signaling a potential near-term consolidation.
Upside Levels: The pair’s next resistance is at the all-time high of 86.69, with a potential extension toward the 87.00 psychological level upon a decisive breakout.
Downside Levels: Immediate support is at 85.85, with further levels at 85.65 and the 85.00 psychological mark.
Conclusion
The Indian Rupee’s recovery remains tentative as it grapples with persistent headwinds from external and domestic pressures. The RBI’s intervention, alongside upcoming inflation data, will play a critical role in shaping near-term market dynamics for the INR. Traders should exercise caution amid volatile conditions and overbought signals in the USD/INR pair.
Related Topics:
