The Indian Rupee (INR) declined on Tuesday after hitting a one-week high in the previous session. The US Dollar (USD) is poised to maintain its upward momentum, driven by strong demand from importers and a reversal of global financial flows favoring the United States. However, the Reserve Bank of India (RBI) is expected to step in to limit any significant depreciation of the local currency through interventions in the foreign exchange markets. Additionally, a decline in global crude oil prices provides some support to the INR, benefiting India as the world’s third-largest oil consumer.
Investors are keeping a close eye on upcoming policy announcements, which could act as fresh catalysts for the INR. On Friday, HSBC India’s preliminary reading of the January Purchasing Managers Index (PMI) will be a key event. Additionally, the S&P PMI data from the US is set for release.
Rupee Faces Challenges Amid Global Factors
The Indian Rupee remains fragile amidst global developments, with expectations of a potential rebound once the initial excitement around Donald Trump’s presidency subsides. According to the State Bank of India (SBI), “There will be the risk of a correction in the dollar should it look like Trump will be more selective on tariffs after all – but that should probably come at a later stage.”
Foreign investors have pulled out around $6.5 billion from Indian stocks and bonds in January, marking the largest monthly outflow since October 2023. Trump recently announced plans to impose 25% tariffs on Canada and Mexico by early February, which could affect market sentiment. He also proposed declaring a national energy emergency to fast-track approval for key energy projects in the US.
USD/INR Maintains Bullish Trend
Despite the INR’s short-term decline, the longer-term outlook for the USD/INR pair remains bullish. The currency pair has been forming higher highs and higher lows, staying above the key 100-day Exponential Moving Average (EMA). The 14-day Relative Strength Index (RSI) is hovering above the midline near 65.40, indicating that further gains are likely.
The primary resistance level for USD/INR is the all-time high of 86.69, and a sustained move above this level could lead to a rally towards the psychological 87.00 mark. On the downside, initial support is seen at 86.18, the low of January 20, with further support levels at 85.85 and 85.65.
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