The Indian Rupee (INR) continues to extend its losses for the second consecutive session on Friday, hovering near fresh record lows against the US Dollar (USD). The USD/INR pair has been primarily pressured by a stronger US Dollar (USD), fueled by remarks from US President-elect Donald Trump’s trade adviser, as well as domestic developments that are contributing to the INR’s weakness.
Key Drivers Impacting INR/USD
1. Strong US Dollar Amid Tariff Threats
Trump’s Tariff Remarks: The USD has been bolstered by US President-elect Donald Trump’s tariff threats, particularly directed at China. His senior trade adviser warned China against currency manipulation, further strengthening the USD against other currencies, including the INR.
Weaker Offshore Yuan (CNH): Asian currencies, including the Indian Rupee, have faced downward pressure due to the weaker Chinese Yuan (CNH), as concerns over US-China trade tensions mount.
2. Domestic Economic Developments
RBI Leadership Change: The appointment of Sanjay Malhotra as the next Reserve Bank of India (RBI) Governor has triggered speculations about potential interest rate cuts. Traders are raising bets on lower interest rates, which could undermine the INR, as lower rates may lead to reduced investor interest in Indian assets.
Retail Inflation: India’s retail inflation moderated to 5.48% in November, down from October’s 14-month high of 6.21%. This slowdown, driven by lower food prices, has strengthened expectations that the RBI might cut interest rates in its February policy review.
3. Foreign Institutional Investors (FIIs) Outflows
Market Sentiment: The Indian equity markets opened lower on Friday, mirroring global risk-off sentiment following Wall Street’s decline. Foreign Institutional Investors (FIIs) recorded net sales of Indian equities worth ₹3,560.01 crore on December 12, contributing to the INR’s pressure. However, Domestic Institutional Investors (DIIs) made net purchases of ₹2,646.65 crore, providing some support to the markets.
Impact of US Economic Data
US Producer Price Index (PPI): The US PPI jumped 0.4% month-on-month (MoM) in November, exceeding expectations, and contributing to the strengthening of the USD.
US Consumer Price Index (CPI): The US CPI rose 2.7% year-over-year (YoY) in November, signaling continued inflationary pressures, which have led to expectations of a 25 basis point rate cut by the Federal Reserve on December 18.
Technical Analysis: USD/INR Near Record Highs
Bullish Momentum: The USD/INR pair continues to show a strengthening bullish bias, moving upwards within an ascending channel pattern. The 14-day Relative Strength Index (RSI) is slightly below the 70 level, indicating room for further upside.
Resistance Levels: The pair is approaching its all-time high of 84.88, recorded on December 12. A breakout above this level could open the door for further gains towards the upper boundary of the ascending channel, around 85.10.
Support Levels: Initial support is at the nine-day Exponential Moving Average (EMA) of 84.73, aligning with the lower boundary of the channel near the psychological level of 84.70.
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