In Tuesday’s early European session, the Indian Rupee (INR) is edging lower and is near a fresh record low. It’s facing weakness due to a decline in its Asian peers, an outflow of foreign money, and the persistent strength of the US Dollar (USD) from importers and foreign banks. However, the foreign exchange intervention by the Reserve Bank of India (RBI) might stop the INR from depreciating further.
Key Economic Data to Watch
US CPI: The US Consumer Price Index (CPI) for November will be in focus on Wednesday. This report could be a factor that affects whether the Federal Reserve (Fed) makes a third successive rate cut.
Indian CPI: India will release its CPI inflation data on Thursday.
Other Data: India’s forex reserves rose by $1.51 billion to $658.09 billion for the week ended November 29, according to the RBI on Friday. Also, the Indian central bank revised its real Gross Domestic Product (GDP) growth forecast for the current fiscal year, lowering it from 7.2% to 6.6%, showing a more cautious outlook for the Indian economy.
Fed’s Stance and Market Expectations
San Francisco Fed President Mary Daly said on Friday that the US jobs market still looked healthy after new employment data came out. She also stated that the Fed is ready to raise rates if inflation breaks out again. Meanwhile, financial markets are pricing in nearly an 85.8% possibility of a 25 basis points (bps) rate cut by the Fed on December 17 – 18, as per the CME FedWatch tool.
USD/INR Technical Outlook
The Indian Rupee is trading on a softer note on Tuesday. The USD/INR pair has a constructive outlook as its price is holding above the key 100-day Exponential Moving Average (EMA) on the daily timeframe. But the 14-day Relative Strength Index (RSI) is above the midline near 71.60, indicating an overbought condition. This means that further consolidation might happen before there’s any near-term appreciation of the USD/INR pair.
Resistance and Support Levels: The all-time high of 84.86 acts as an immediate resistance level for USD/INR. If it trades consistently above this level, it could lead to reaching the 85.00 psychological level and then head towards 85.50. On the other hand, if there are bearish candlesticks below the resistance-turned-support of 84.61, it could bring enough selling pressure to drag the pair down to 84.22, which is the low of November 25. The next level to watch is 84.06, which is the 100-day EMA.
Outlook from Bank of Baroda
Economists at Bank of Baroda noted that they expect the INR to trade at current levels with a depreciating bias. They also said that the Reserve Bank of India’s recent measures to boost foreign inflows and a range-bound current account deficit (CAD) should offer support over the medium term.
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