The Indian Rupee (INR) strengthened on Wednesday, supported by potential foreign exchange intervention from the Reserve Bank of India (RBI) and a recovery in Asian currencies, particularly the offshore Chinese Yuan (CNH). However, the local currency faces headwinds from persistent foreign fund outflows and rising crude oil prices, which could limit its gains.
RBI Intervention and Strong Asian Currencies Support INR
The RBI has been actively managing the Rupee’s volatility through foreign exchange interventions. Government data released on Tuesday revealed that the central bank was a net seller of over $36 billion between June and December in efforts to stabilize the INR. The Rupee also found support from a stronger offshore Chinese Yuan, which bolstered broader sentiment across Asian currencies.
Despite these positive factors, foreign investors have continued to withdraw funds from Indian equities. So far this year, foreign outflows have reached nearly $15 billion, raising concerns that withdrawals could surpass the record $17 billion seen in 2022. These outflows could weigh on the Rupee in the near term.
Crude Oil Prices and Inflation Data in Focus
The recent rebound in crude oil prices poses another challenge for the Indian Rupee. As the world’s third-largest oil consumer, India is highly sensitive to rising energy costs, which can widen the trade deficit and put downward pressure on the INR.
Looking ahead, investors are closely monitoring the Indian and US Consumer Price Index (CPI) inflation reports for February, scheduled for release later on Wednesday. These reports will play a crucial role in shaping market expectations for future interest rate decisions by the Reserve Bank of India and the US Federal Reserve.
US Dollar Weakness and Global Market Trends
A softer US Dollar (USD) has also contributed to INR’s gains. The latest US JOLTS job openings report showed an increase to 7.74 million in January, surpassing expectations of 7.63 million, but markets remain focused on potential Federal Reserve rate cuts. Financial markets have priced in 75 basis points (bps) of rate reductions this year, with a June cut fully anticipated, according to LSEG data.
Meanwhile, former US President Donald Trump reversed his earlier decision to double tariffs on Canadian steel and aluminum to 50%, adding an element of uncertainty to global trade dynamics.
Technical Analysis: USD/INR Holds a Bullish Bias
Despite the Rupee’s recent recovery, the USD/INR pair maintains a constructive outlook in the medium term. The pair remains above the key 100-day Exponential Moving Average (EMA) on the daily chart, indicating continued bullish momentum. Additionally, the 14-day Relative Strength Index (RSI) sits above the midline near 56.15, reinforcing the upward trend.
Immediate resistance is located at 87.53, the high from February 28. A sustained break above this level could push the pair toward an all-time high near 88.00, with further upside potential to 88.50.
On the downside, the March 6 low at 86.86 serves as the first support level. A break below this could trigger further declines toward 86.48 (February 21 low), followed by 86.14 (January 27 low).
Outlook: Rupee’s Gains May Be Capped
While the Rupee has gained ground on the back of RBI intervention and broader Asian currency strength, risks remain. Persistent foreign outflows and higher crude oil prices could limit the currency’s upside potential. Traders will be closely watching the upcoming inflation data for fresh cues on monetary policy direction, both in India and the US, which could determine the next move for USD/INR.
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