The Indian Rupee (INR) made a recovery on Thursday, supported by a broad rally in Asian currencies, including the Chinese Yuan. This rebound followed positive remarks from US President Donald Trump, who suggested a potential trade deal with China could be reached, helping to ease tensions in the trade dispute between the two economic giants. Additionally, expectations of possible US Dollar (USD) selling interventions by the Reserve Bank of India (RBI) and a drop in crude oil prices may provide further support for the INR.
However, the INR remains under pressure due to significant Foreign Portfolio Investment (FPI) outflows. In the first six weeks of 2025, FPIs sold over $10 billion worth of Indian equities, marking the largest outflow on record for this period and contributing to the worst start for domestic markets in over a decade.
As market participants await key US economic data releases, including Initial Jobless Claims, the CB Leading Economic Index, and the Philly Fed Manufacturing Index later Thursday, attention will also turn to remarks from Federal Reserve officials. Fed policymakers have indicated a cautious approach to future rate cuts, emphasizing the need for clear signs of inflation slowing before any further reductions.
Global and Domestic Factors Affecting the INR
The RBI’s foreign exchange reserves have sharply declined by more than $75 billion since September 2023, contributing to the INR’s slide from 83.70 to 87.96 against the USD by February 10. India’s GDP growth is also slowing, with estimates for the October-December quarter of 2024-25 projected at 6.6%, down from 8.6% during the same period a year earlier, according to Bank of Baroda.
Despite these challenges, the INR’s recovery has been supported by a slightly stronger global market sentiment. In technical terms, the USD/INR pair continues to hold a bullish outlook, trading above the key 100-day Exponential Moving Average (EMA). The Relative Strength Index (RSI) is also supporting buyers, standing at 55.50.
The immediate upside resistance for USD/INR lies at the 87.00 psychological level, with potential for a rally toward the all-time high near 88.00, and ultimately 88.50. On the downside, the initial support is seen at 86.58, followed by 86.35 and 86.14 if the pair reverses course.
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