The Indian Rupee (INR) extended its downward trajectory on Monday, following a record low close in the previous session. Mounting pressure from a weakening Chinese Yuan, fewer anticipated US Federal Reserve (Fed) rate cuts, and potential tariff threats from incoming US President-elect Donald Trump’s administration have left the local currency vulnerable.
RBI Intervention and Key Data Releases in Focus
The Reserve Bank of India (RBI) is expected to intervene by selling US Dollars (USD) to curb excessive depreciation of the INR. Meanwhile, traders are gearing up for India’s HSBC Composite and Services PMI data for December. On the international front, the US S&P Global Composite and Services PMI figures are set for release, alongside remarks from Fed Governor Lisa Cook.
“Global developments remain the wild card, with the U.S. government due to take office in mid-January 2025,” noted Radhika Rao, Executive Director and Senior Economist at DBS Bank.
According to a Bank of Baroda report, the Rupee is likely to experience slight depreciation in 2025, driven by volatile foreign portfolio investment (FPI) flows and a stronger Greenback.
Fed Stance and USD Momentum Weigh on INR
On the US economic front, December’s Manufacturing PMI climbed to 49.3, surpassing market expectations of 48.4, according to the Institute for Supply Management (ISM). Fed officials, including Mary Daly and Adriana Kugler, reiterated over the weekend that inflation remains uncomfortably above the 2% target, signaling a restrictive policy stance. Richmond Fed President Thomas Barkin echoed similar sentiments, emphasizing the need to maintain the Fed’s benchmark rate until inflation trends decisively toward the target.
USD/INR Technical Outlook
The USD/INR pair maintains a bullish bias, having broken above a critical ascending trend channel last week and finding support above the 100-day Exponential Moving Average (EMA). However, the overbought 14-day Relative Strength Index (RSI) suggests the potential for consolidation before further gains.
On the upside, the all-time high of 85.81 remains a key resistance level. A decisive breakout above this level could propel the pair toward the 86.00 psychological mark. Conversely, support at 85.55 could act as a floor; sustained trading below this threshold might open the door to further declines toward 85.00 and the 100-day EMA at 84.43.
Outlook
With global developments and domestic data releases on the horizon, the INR’s near-term performance hinges on a delicate balance of external and internal factors. Investors are advised to remain cautious as market volatility looms.
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