The Indian Rupee (INR) weakened on Monday, nearing a fresh all-time low as the US Dollar (USD) gained strength following stronger-than-expected US employment data for December. The robust jobs report reinforced expectations that the US Federal Reserve (Fed) might refrain from aggressively cutting interest rates this year, providing support to the Greenback and exerting downward pressure on the INR.
Further exacerbating the INR’s challenges were heavy outflows from domestic equities, hawkish signals from the Fed, and rising crude oil prices, as India remains the world’s third-largest oil consumer. However, the Reserve Bank of India (RBI) has been intervening in the foreign exchange market by offering US Dollars, which has helped to cap the INR’s losses.
Traders are closely watching India’s upcoming Consumer Price Index (CPI) data, which is expected to show a 5.3% year-on-year increase for December. Meanwhile, in the US, the Monthly Budget Statement will be released later on Monday.
INR Could Fall Below 90 to the Dollar as RBI Prepares to Move Away from Quasi-Peg
The Indian Rupee may fall below 90 per US Dollar this year as the Reserve Bank of India (RBI) appears poised to abandon its implicit quasi-peg to the USD, according to Gavekal Research. The US Bureau of Labor Statistics reported on Friday that Nonfarm Payrolls rose by 256,000 in December, well above the 160,000 expected, signaling a stronger labor market and further supporting the USD. Additionally, the Unemployment Rate in the US dropped to 4.1%, while Average Hourly Earnings grew at a slower pace of 3.9%.
Fed officials have provided mixed signals regarding interest rates. Chicago Fed President Austan Goolsbee suggested that if inflation remains stable and full employment is maintained, the Fed should consider rate cuts. In contrast, St. Louis Fed President Alberto Musalem emphasized caution, noting that the risk of inflation remaining above the Fed’s target has increased.
Technical Outlook: USD/INR’s Uptrend Remains, but Overbought Conditions Warn of Potential Consolidation
The USD/INR pair remains in an uptrend, holding above the key 100-day Exponential Moving Average (EMA). However, the 14-day Relative Strength Index (RSI) has crossed the 70.00 mark, indicating that the pair is in overbought territory and signaling the potential for consolidation.
The immediate resistance for USD/INR is at an all-time high of 86.15. If the pair sustains trading above this level, it could continue its climb toward 86.50. On the downside, the first support level is at 85.85, followed by 85.65, and the psychological 85.00 level if the bears take control.
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