The Indian Rupee (INR) showed some recovery 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 market, likely selling U.S. dollars in both the spot and forward markets to curb the currency‘s depreciation. However, the INR remains under pressure due to rising crude oil prices and substantial foreign capital outflows from Indian equities. The strengthening U.S. Dollar, bolstered by positive U.S. employment data, has also heightened expectations that the U.S. Federal Reserve will scale back its interest rate cuts this year, further weighing on the INR.
Traders will closely monitor India’s Wholesale Price Index (WPI) inflation data, set to be released later on Tuesday, as well as the U.S. Producer Price Index (PPI) for December. Additionally, Federal Reserve Kansas City President Jeff Schmid is scheduled to speak later in the day.
Despite the recent recovery, the Indian Rupee remains vulnerable to various economic headwinds. India’s retail inflation, as measured by the Consumer Price Index (CPI), eased slightly to 5.22% year-on-year in December, down from 5.48% in November, slightly below the expected 5.3%. However, the Consumer Food Price Index (CFPI) showed a year-on-year increase of 8.39% in December.
Anil Kumar Bhansali, Head of Treasury at Finrex Treasury Advisors LLP, indicated that the RBI may allow the currency’s weakness to persist, given increasing demand and dwindling supplies. Additionally, India’s foreign exchange reserves declined by USD 5.693 billion in the week ending January 3, leaving the total at USD 634.585 billion.
Global investors have pulled approximately $2 billion from Indian equities this year, with net sales of $705.5 million in fixed-income securities on January 8. The market now expects the Fed to implement just one rate cut in 2025, down from an earlier expectation of two quarter-point cuts.
Looking at the technical outlook for USD/INR, the pair maintains a bullish stance, with the price forming higher highs and higher lows, supported by the 100-day Exponential Moving Average (EMA). However, caution is advised as the 14-day Relative Strength Index (RSI) surpasses 70, indicating an overbought condition. The next major upside target is the all-time high of 86.69, with the psychological level of 87.00 in sight. On the downside, initial support is seen at 85.85, followed by 85.65 and 85.00.
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