In the early part of the European session on Thursday, the Indian Rupee (INR) is on a downward slide. It hovers near a record low despite the efforts of the Reserve Bank of India (RBI) to intervene.
A combination of factors is weighing on the INR. There is a strong demand for the US Dollar (USD). Additionally, concerns about India’s economic growth have emerged. The disappointing economic data, such as the HSBC India Services PMI which came in at 58.4 in November against the market consensus of 59.5 and a reading lower than that of October (59.2), has dampened sentiment. Moreover, significant outflows from Indian portfolios, especially in the wake of Donald Trump’s strong showing in the US Presidential elections, have also contributed to the selling pressure on the local currency.
However, the lower crude oil prices could potentially act as a buffer for the INR. India being the world’s third-largest oil consumer stands to benefit from the reduction in oil costs. Investors are now looking ahead to the release of the US weekly Initial Jobless Claims and Goods Trade Balance reports scheduled for later on Thursday. The focus will then shift to the RBI interest rate decision and the crucial Nonfarm Payrolls (NFP) data on Friday.
The INR’s Weakening and New Lows
The US service sector growth also experienced a slowdown in November. The Institute for Supply Management (ISM) reported a fall to 52.1 from 56.0 in October. The US S&P Global Composite PMI declined to 54.9 in November compared to previous readings and expectations of 55.3. The Services PMI dropped to 56.1 in November from 57.0, below the consensus.
Fed Chair Jerome Powell’s remarks on Wednesday indicated that the US economy is in a good state. This has led Fed officials to consider a more cautious approach in further rate cuts. Unemployment remains low and progress has been made on inflation, according to Powell. The Fed’s Beige Book survey also showed a slight increase in US economic activity in November after a period of little change, with businesses becoming more optimistic about demand prospects.
For the USD/INR pair, the situation is one of an upward trend. The pair is maintaining its uptrend on the daily timeframe and is trading above the key 100-day Exponential Moving Average (EMA). However, there are signs of a potential reversal. The pair is making higher highs, but the 14-day Relative Strength Index (RSI) is making lower highs, indicating a bearish divergence. This implies that the current upward trend might lose steam and reverse in the near future.
The first resistance level to watch is close to the all-time high of 84.77. If bullish candlesticks continue to form, the pair could potentially reach the 85.00 psychological mark and then 85.50. On the downside, if selling pressure persists below the resistance-turned-support at 84.60, the pair could drop to 84.22, the low of November 25. The 100-day EMA at 84.02 is seen as a potential support level.
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