The Indian Rupee (INR) remained largely unchanged on Wednesday, weighed down by persistent US Dollar (USD) buying from foreign portfolio investors and local oil companies. Additionally, US President Donald Trump’s proposed tariffs on China added pressure to the INR, with concerns that the move could negatively affect Asian currencies.
Despite these headwinds, the downside for the INR may be limited. The Reserve Bank of India (RBI) is expected to step in, potentially selling USD in the foreign exchange market to prevent significant depreciation. A drop in global crude oil prices could also provide support to the INR, as India is the world’s third-largest oil consumer. Investors are closely awaiting the preliminary HSBC India Purchasing Managers Index (PMI) and US S&P PMI data for January, due for release on Friday.
INR Faces Multiple Economic Pressures
India’s economic outlook remains under pressure, with GDP growth estimated at 6.5-6.8% for the current fiscal year, according to Deloitte India. However, Moody’s downgraded its growth forecast to 7.0% for fiscal year 2024-2025, down from 8.2% in the previous year. Meanwhile, foreign investors have pulled a net $6.5 billion from Indian equities and bonds in January, marking the largest monthly outflow since October 2023.
Trump’s statement on Tuesday about considering a 10% tariff on Chinese imports, effective February 1, could further weaken sentiment in emerging markets, including India, due to concerns over potential trade disruptions. The tariffs are reportedly linked to concerns about fentanyl shipments from China to Mexico and Canada, according to Reuters.
USD/INR Technical Outlook: Bullish Momentum in the Near Term
The USD/INR pair remains in a constructive uptrend, forming higher highs and higher lows while staying above the key 100-day Exponential Moving Average (EMA). The 14-day Relative Strength Index (RSI) also remains above the midline at around 67, signaling bullish momentum in the near term.
The key resistance level for the pair remains at the all-time high of 86.69, which could be challenging for the bulls to break. A sustained move above this level could pave the way for a rally toward the psychological resistance of 87.00.
On the downside, a dip below 86.18, the low of January 20, could open the door to further declines, with the next support target at 85.85, the low from January 10. A further slide could bring the next key level into play at 85.65, marking the low of January 7.
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