The Indian Rupee (INR) experienced a decline on Thursday, driven by a resurgence in demand for the US Dollar (USD). Despite robust economic growth expectations, concerns regarding rising inflation and escalating crude oil prices due to geopolitical tensions in the Middle East are anticipated to limit the INR’s upward potential in the short term.
The National Statistical Office’s advance estimates project a commendable 7.3% expansion of the Indian economy in the current fiscal year, surpassing even optimistic forecasts. However, the ongoing geopolitical uncertainties and their impact on inflation and oil prices present challenges for the INR.
Investors are closely monitoring US economic data, particularly the preliminary US Gross Domestic Product Annualized (Q4) release on Thursday, which is projected to grow by 2.0%. The INR’s performance may be influenced by shifts in rate-cut expectations in the United States.
Indian markets will be closed on Friday for Republic Day, redirecting attention to the upcoming release of the US Core Personal Consumption Expenditures Price Index (Core PCE) for December and India’s interim budget for fiscal year 2024–25 (FY25) on February 1.
Key Market Movements and Factors Affecting the INR:
Foreign investors have sold approximately $2 billion worth of Indian equities in January, following net buys of $7.9 billion in the previous month.
Reserve Bank of India Governor Shaktikanta Das emphasizes the need for actively disinflationary monetary policy despite the recent fall in core inflation.
India’s core inflation reached its lowest level in four years in December, potentially leading the rate-setting panel to consider an adjustment to a “neutral” position next month.
The RBI aims for a narrower FY25 fiscal deficit of 5.3%–5.6% of GDP, compared to 5.9% in FY24.
Former St. Louis Federal Reserve President James Bullard suggests that the central bank may begin cutting interest rates before inflation hits 2%, possibly as early as March.
Technical Analysis of USD/INR:
The USD/INR pair is currently confined within the 82.80–83.40 trading range since September 2023. Despite the INR weakening on the day, the pair remains directionless, as indicated by the 14-day Relative Strength Index (RSI) hovering around the 50.0 midline.
Key Levels for USD/INR:
Upside Barriers: 83.40 (upper limit of the trading range), 83.47 (2023 high), and 84.00 (round figure).
Downside Support: 83.00 (psychological mark), 82.80 (lower limit of the trading range, low of January 15), and 82.60 (low of August 11).
