The Indian Rupee (INR) continues to hover near an all-time low on Monday, pressured by a decline in the offshore Chinese Yuan and increased demand for US Dollars from month-end importers. The persistent strength of the Greenback, fueled by the Federal Reserve’s hawkish stance, has been a key factor undermining emerging market currencies, including the INR.
Amid this pressure, the Reserve Bank of India (RBI) is expected to intervene in the foreign exchange market, potentially selling US Dollars to limit the INR’s losses in the short term. As the week progresses, key economic data is set to be released, with the US Consumer Confidence Index and the Chicago Fed National Activity Index scheduled for later on Monday, and Durable Goods Orders due on Tuesday.
Indian Rupee Faces Increased Vulnerability
India’s foreign exchange reserves have been on a downward trajectory, falling in nine of the last ten weeks to a multi-month low. Since reaching a historic high of USD 704.89 billion in September, reserves have steadily declined, with the latest data from the RBI showing reserves at USD 654.857 billion. Analysts attribute the drop to a widening trade deficit and slower economic growth, compounded by capital outflows from domestic equity markets.
Kunal Sodhani, vice president at Shinhan Bank India, noted that the pressure on the INR is likely to persist. “Higher trade deficits and weak growth figures, coupled with outflows from domestic equities, put the rupee to the test. For USD/INR, the 84.70 level now serves as a solid base, with the possibility of testing the 85.50 mark,” he said.
Meanwhile, US inflation data released last week showed that the Personal Consumption Expenditures (PCE) Price Index rose by 2.4% year-on-year in November, slightly below market expectations. The core PCE, excluding food and energy, climbed 2.8%, in line with the previous month but also below expectations of 2.9%.
USD/INR Outlook Remains Bullish
The USD/INR pair continues to show a strong uptrend, maintaining support above the key 100-day Exponential Moving Average (EMA). The pair’s path of least resistance is likely to be upward, as indicated by the 14-day Relative Strength Index (RSI), which is currently near 65.40. Bullish candlestick patterns suggest a potential rise toward the 85.20 level, with further gains possibly pushing the pair to 85.50.
However, the lower boundary of the ascending channel, currently at 84.88, serves as an initial support level. A breach of this level could pave the way for a decline toward 84.19, the 100-day EMA.
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