The Indian Rupee (INR) showed signs of recovery on Monday, bouncing back after enduring its worst week in 18 months. The strengthening of the local currency can be attributed to regular interventions by the Reserve Bank of India (RBI) and a drop in global crude oil prices, both of which helped stem further losses.
Despite these positive factors, the INR continues to face pressure from persistent foreign portfolio outflows and rising demand for the US Dollar (USD) in the non-deliverable forwards (NDF) market. With President-elect Donald Trump’s inauguration scheduled for 17:00 GMT, markets are closely watching the potential impact of his policy announcements. Investors fear that anticipated tariff policies under the incoming administration could weigh on emerging market currencies, including the INR.
India’s Foreign Exchange Reserves Continue Decline
India’s foreign exchange reserves fell for the sixth consecutive week, reaching a 10-month low of $625.9 billion for the week ending January 10, according to the RBI. Analysts suggest that the central bank has been cautious in using its reserves to prevent excessive currency volatility amid ongoing global challenges. The reserves also include India’s reserve tranche position in the International Monetary Fund (IMF).
Economic Growth Projections and US Economic Data
India’s economy is projected to grow by 6.7% in the next fiscal year, slightly up from 6.5% in the current year, according to the World Bank. This represents a decline from the 8.2% growth seen in the previous period.
Meanwhile, in the United States, housing starts surged by 15.8% to 1.499 million in December, surpassing the estimated 1.32 million. However, US building permits saw a modest decline of 0.7% to 1.483 million, though still higher than the market consensus of 1.46 million.
Technical Analysis: USD/INR Outlook
The USD/INR pair remains bullish, with the price forming higher highs and higher lows above the key 100-day Exponential Moving Average (EMA) on the daily chart. However, the 14-day Relative Strength Index (RSI) has entered overbought territory, suggesting that the pair may experience temporary weakness or consolidation in the near future.
An all-time high of 86.69 remains a key resistance level, and a sustained break above this mark could target the psychological level of 87.00. On the downside, any decline below 86.30, the January 15 low, could open the door for further losses toward 85.85 and 85.65, the lows from January 10 and 7, respectively.
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