- The Indian Rupee edges higher in Friday’s early early European session.
- The firmer USD, a rise in crude oil prices and foreign outflows pressured the INR.
- Investors will closely monitor the US December NFP data.
The Indian Rupee (INR) recovers some lost ground on Friday after reaching a record low in the previous session. The stronger US Dollar (USD) and higher crude oil prices continue to weigh on the local currency. This, along with relentless selling in domestic equities and outflow of foreign capital, might keep the INR under pressure in the near term.
Nonetheless, the RBI could intervene in the foreign exchange market to prevent the INR from depreciating to its historic low level. Later on Friday, traders will keep an eye on the Indian Industrial Output and Manufacturing Output for November. On the US docket, the labor market data for December will be closely watched, including the Nonfarm Payrolls (NFP), Unemployment Rate and Average Hourly Earnings.
Indian Rupee rebounds from an-all time low amid uncertainties
- “We expect rupee to trade with a negative bias on weak domestic markets, strong dollar and rising US treasury yields. Elevated crude oil prices and FII outflows also put downside pressure on the domestic currency. However, any RBI intervention may support rupee at lower levels. Investors may watch out for non-farm payrolls report. USD-INR spot price is expected to trade in a range of Rs 85.75 to Rs 86.10,” said Anuj Choudhary, Research Analyst at Mirae Asset Sharekhan.
- Foreign investors have removed around $2 billion dollars from India’s stock market since the start of the year.
- India’s economy is estimated to grow by 6.6% in 2025, according to the United Nations World Economic Situation and Prospects (WESP) report on Thursday.
- Federal Reserve Bank of Boston President Susan Collins said on Thursday that significant uncertainty over the outlook calls for the Fed to move forward cautiously with future rate reductions.
- Philadelphia Fed President Patrick Harker still expects rate cuts, but any sort of imminent move down is not needed amid considerable uncertainty over the economic outlook, per Reuters.
- Kansas City Fed President Jeff Schmid stated he favors slowing the pace of interest-rate cuts, though only after a persistent change in incoming economic data.
- Fed Governor Michelle Bowman said on Thursday that said she sees the interest rates on hold for the time being until the data shows inflation has resumed its downward trend.
USD/INR’s bullish outlook remains in play, but overbought conditions could limit any advance
The Indian Rupee trades on a firmer note on the day. The path of least resistance is to the upside as the USD/INR pair is well-supported above the key 100-day Exponential Moving Average (EMA) on the daily timeframe.
However, the 14-day Relative Strength Index (RSI) moves beyond the 70.00 mark, indicating the overbought condition. This suggests that further consolidation cannot be ruled out before positioning for any near-term USD/INR appreciation.
The first immediate resistance level for USD/INR is located at the 85.95-86.00 region, representing the all-time high and the psychological mark. Sustained bullish momentum past the mentioned level could even lift the pair to the next upside target at 86.50.
On the downside, the initial support level to watch for the pair emerges at 85.65, the low of January 7. If bears are taking the upper hand, this could be followed by a drop to 84.51, the 100-day EMA.
RBI FAQs
The role of the Reserve Bank of India (RBI), in its own words, is “..to maintain price stability while keeping in mind the objective of growth.” This involves maintaining the inflation rate at a stable 4% level primarily using the tool of interest rates. The RBI also maintains the exchange rate at a level that will not cause excess volatility and problems for exporters and importers, since India’s economy is heavily reliant on foreign trade, especially Oil.
The RBI formally meets at six bi-monthly meetings a year to discuss its monetary policy and, if necessary, adjust interest rates. When inflation is too high (above its 4% target), the RBI will normally raise interest rates to deter borrowing and spending, which can support the Rupee (INR). If inflation falls too far below target, the RBI might cut rates to encourage more lending, which can be negative for INR.
Due to the importance of trade to the economy, the Reserve Bank of India (RBI) actively intervenes in FX markets to maintain the exchange rate within a limited range. It does this to ensure Indian importers and exporters are not exposed to unnecessary currency risk during periods of FX volatility. The RBI buys and sells Rupees in the spot market at key levels, and uses derivatives to hedge its positions.
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