The USD/INR currency pair has witnessed some softening as the Indian Rupee (INR) makes a partial recovery in Wednesday’s early European session. The movements of the pair are being shaped by a confluence of factors, with the Reserve Bank of India’s (RBI) potential intervention taking center stage.
The INR managed to recoup some of its losses after hitting a new record low in the previous session. The RBI frequently steps in to manage the currency’s value by adjusting liquidity, often through selling US Dollars to stave off sharp depreciation of the INR. This intervention mechanism remains a key factor that could potentially limit the INR’s downside in the current scenario.
However, the recent appointment of career bureaucrat Sanjay Malhotra as the next governor of the RBI has led traders to increase their bets on interest rate cuts. Such dovish expectations have the potential to weigh on the local currency. Additionally, the INR is facing downward pressure from the decline of its Asian counterparts and the persistent strength of the US Dollar, driven by importers and foreign banks.
Looking ahead, the US November Consumer Price Index (CPI) inflation report, set to be released on Wednesday, will be closely watched by market participants. On the domestic front in India, the CPI inflation data, along with Industrial Output and Manufacturing Output figures, will be made public on Thursday.
The anticipated change in leadership at the RBI has economists predicting a shift in the monetary policy committee’s stance. With the departure of the previous governor, economists expect a dovish tilt to emerge, as the outgoing governor and the RBI Deputy Governor were considered the most hawkish members of the rate-setting panel. Economists at Capital Economics foresee a 25 basis points (bps) cut in India’s repo rate at Malhotra’s first Monetary Policy Committee (MPC) meeting in February, or perhaps even earlier in an unscheduled meeting. Under the previous leadership, the cut was estimated to occur in April.
The market sentiment regarding rate cuts is also reflected in India’s 10-year bond yields, which were down 2 basis points (bps) at 6.699% on Tuesday, signaling expectations of a rate reduction. Meanwhile, S&P Global Ratings estimated 6.8% growth for the Indian economy in FY25, followed by 6.9% growth in FY26, attributing it to strong urban consumption, steady service sector growth, and ongoing infrastructure investment.
In the global context, financial markets are currently pricing in nearly an 85.8% probability of a 25 bps rate cut by the Federal Reserve on December 17 – 18, according to the CME FedWatch tool.
From a technical analysis perspective, the USD/INR pair presents an interesting picture. While the Indian Rupee is trading on a relatively firmer note for the day, the pair maintains a bearish sentiment on the daily timeframe as it remains well above the key 100-day Exponential Moving Average (EMA). The 14-day Relative Strength Index (RSI) is positioned above the midline near 72.75, indicating an overbought condition. This suggests that further consolidation might occur before any near-term appreciation of the USD/INR can be expected.
On the upside, the upper boundary of the ascending trend channel and the psychological level of 85.00 pose a significant resistance for the bulls. If the pair manages to sustain trading above this level, it could potentially rally towards 85.50. Conversely, on the downside, the boundary of the trend channel and the low of December 9 at 84.65 serve as an initial support level. A break below this support zone could pull the pair lower to the next bearish target at 84.22, the low of November 25, and then to 84.08, the 100-day EMA.
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