The Indian Rupee experienced a negative trajectory on Monday, contrary to the decline observed in the US Dollar (USD). Despite assertions from three union ministers at the World Economic Forum Annual Meeting 2024, claiming robust and inclusive economic growth in India, the currency grapples with challenges. The ministers highlighted India’s attractive growth prospects, particularly in contrast to China’s economic slowdown, presenting a clear investment opportunity. Nevertheless, the INR confronts significant pressures from elevated US interest rates and fluctuating oil prices.
In light of the Ayodhya Ram Mandir ‘Pran Pratishtha’ ceremony, both the Bombay Stock Exchange (BSE) and National Exchange (NSE) remained closed on Monday. The week ahead is anticipated to focus on key events, notably the release of the preliminary US Gross Domestic Product Annualized for the fourth quarter on Thursday and the December Core Personal Consumption Expenditures Price Index (Core PCE) on Friday.
Market Highlights: Challenges and Resilience of the Indian Rupee
India’s foreign exchange reserves saw a notable increase of USD 1.634 billion, reaching USD 618.937 billion for the week ending January 12, according to the Reserve Bank of India (RBI).
RBI Governor Shaktikanta Das emphasized that the central bank will not contemplate interest rate cuts unless inflation stabilizes around the 4% target on a durable basis.
India’s Gross Domestic Product (GDP) registered a growth of 7.2% in the last fiscal year, a decline from just over 9% in the preceding year.
The US Michigan Consumer Sentiment Index climbed to 78.8, the highest level since July 2021, with positive assessments for current economic conditions and future expectations.
The monthly and annual Core Personal Consumption Expenditures Price Index (Core PCE) is anticipated to show a 0.2% MoM increase and a 3% YoY increase, respectively.
The likelihood of a rate cut at the March meeting, as per the CME FedWatch Tool, fell to 49.3%, down from 81% a week ago, a sentiment echoed by the Fed‘s Daly who deemed it premature to anticipate imminent rate cuts.
Technical Analysis: Indian Rupee in a Consolidation Phase
The Indian Rupee trades with a softer tone, as reflected in the USD/INR pair’s consolidation within the 82.80–83.40 range since September 2023. Despite the vulnerability above the key 100-period Exponential Moving Average (EMA) on the daily chart, the 14-day Relative Strength Index (RSI) below the 50.0 midline suggests potential further declines.
Key resistance lies at the upper boundary of the trading range at 83.40, with a break potentially triggering a rally towards the 2023 high of 83.47, en route to the psychological 84.00 mark. On the downside, the 83.00 psychological level serves as an initial support, followed by the lower limit of the trading range at 82.80, and a subsequent support zone at 82.60, marked by the low of August 11.