The Indian Rupee (INR) saw a decline on Thursday, breaking its three-day winning streak as concerns over the US economy weighed on the US Dollar (USD), providing some relief to the local currency. However, the Indian Rupee faces additional pressure from expectations that the Reserve Bank of India (RBI) may cut interest rates further, which could exacerbate the INR’s weakness. India has seen negative capital flows for five consecutive months, with persistent outflows from foreign institutional investors (FIIs) likely contributing to the INR’s downward pressure.
Despite these challenges, the RBI’s potential intervention could help cap the Rupee’s losses. The central bank‘s recent move to inject $21 billion in Rupee liquidity into the banking system is aimed at easing lending conditions and supporting economic growth.
Markets will closely monitor the US Initial Jobless Claims data scheduled for later Thursday, as well as speeches from US Federal Reserve officials, including Patrick Harker, Thomas Barkin, and Christopher Waller. On Friday, the US Nonfarm Payrolls (NFP) report for February will be a key focus for investors.
Economic Indicators and Foreign Flows Impact INR
India’s HSBC Composite PMI for February eased to 58.8, down from 60.6 in the previous month, while the Services PMI dropped to 59, from 61.1, exceeding the forecast of 57.3. Despite the decline, job creation and charge inflation remained strong, with business sentiment dipping slightly to its lowest point since August 2024, according to Pranjul Bhandari, chief India economist at HSBC.
Meanwhile, the ongoing outflows of funds from foreign institutional investors continue to weigh on the Rupee. As of Wednesday, President Trump signaled the possibility of exempting certain agricultural products from tariffs imposed on Canada and Mexico. Additionally, the White House announced a temporary one-month exemption for automakers in these countries from newly imposed tariffs.
US private sector employment for February, reported by the Automatic Data Processing (ADP), grew by 77,000, below the revised figure of 186,000 in January and far below the initial estimate of 140,000.
USD/INR Technical Outlook
The INR remains softer on the day, with USD/INR holding above the key 100-day Exponential Moving Average (EMA) on the daily chart. While the longer-term bullish trend for the USD/INR pair remains intact, short-term consolidation is possible as the 14-day Relative Strength Index (RSI) hovers near the neutral 50 level.
Immediate resistance for USD/INR is at 87.53, the high from February 28. A break above this level could pave the way for a move toward an all-time high near 88.00, with a potential target at 88.50. Conversely, the first downside target is 86.48, the low from February 21, with further losses potentially bringing the pair down to 86.14 and 85.60, the lows from January 27 and 6, respectively.
Related Topics:
