The Indian Rupee (INR) edged closer to a new record low on Thursday, continuing to face downward pressure driven by a stronger US Dollar (USD) and rising crude oil prices. Slowing economic growth and foreign outflows from the Indian stock market are further weakening the local currency.
Despite this, the Reserve Bank of India (RBI) is expected to step in and sell USD to mitigate the INR’s losses. Investors are watching for clues from the U.S. Federal Reserve’s commentary on Thursday regarding interest rate expectations for 2025, while Friday will see the release of key U.S. employment data, including the December Nonfarm Payrolls (NFP), Unemployment Rate, and Average Hourly Earnings.
Economic Slowdown and Foreign Outflows Weigh on INR
The Indian Rupee continued to weaken, falling by 0.2% on Wednesday to a record closing low of 85.8550. According to MUFG, the INR is expected to depreciate further, with forecasts predicting a drop to 86.8 per dollar this quarter. Citigroup Inc. anticipates a more modest decline to 86.35.
India’s economic growth is projected to slow to a four-year low of 6.4% in FY25, down from 8.2% in FY24, adding to the pressure on the rupee. The minutes from the U.S. Federal Reserve’s December meeting noted concerns that while inflation may continue to slow, risks remain that price pressures could persist, potentially exacerbated by policies under President-elect Donald Trump.
U.S. Economic Data and Fed Policy Expectations
In the U.S., weekly Initial Jobless Claims data for the week ending January 4 showed a decline to 201K, lower than the previous week’s 211K and better than market expectations of 218K. Fed Governor Christopher Waller indicated on Wednesday that U.S. inflation is expected to keep falling in 2025, allowing for further interest rate cuts, although the pace remains uncertain.
Technical Outlook for USD/INR
Despite the overall bullish sentiment for the USD/INR pair, caution is advised for bulls as the 14-day Relative Strength Index (RSI) has moved into overbought territory above the 70.00 mark, suggesting potential for consolidation before any further appreciation.
The crucial resistance zone for USD/INR is at 85.95-86.00, which includes both the all-time high and a psychological threshold. A clear break above this level could propel the pair towards 86.50. On the downside, initial support is seen at 85.65, the January 7 low. A breach below this level could push USD/INR lower to its 100-day Exponential Moving Average (EMA) at 84.51.
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