The Indian Rupee (INR) weakened on Thursday, halting its three-day winning streak. While concerns about the US economy continue to weigh on the US Dollar (USD), offering some support to the INR, expectations of further rate cuts by the Reserve Bank of India (RBI) are likely to keep downward pressure on the local currency. Additionally, sustained outflows from foreign institutional investors (FII) are contributing to the INR’s challenges.
Capital Flows and RBI Expectations Impact INR
India’s capital flows have remained negative for the fifth consecutive month, with persistent FII outflows further pressuring the INR. On the other hand, the RBI’s anticipated intervention in the currency markets, along with a potential interest rate cut to support economic growth, could help mitigate further declines in the INR. To aid liquidity in the banking system, the RBI recently announced an infusion of $21 billion to ease lending conditions and boost economic growth.
Economic Data and Market Focus
Investors will be closely monitoring the US Initial Jobless Claims report due later on Thursday, along with speeches from Federal Reserve officials including Patrick Harker, Thomas Barkin, and Christopher Waller. The US Nonfarm Payrolls (NFP) data, set to be released on Friday, is also expected to influence market sentiment.
India’s economic data showed mixed results. The HSBC Composite PMI eased to 58.8 in February from 60.6 in January, while the Services PMI dropped to 59 from 61.1, outperforming expectations of 57.3. HSBC’s India economist, Pranjul Bhandari, noted that job creation and inflation remained robust in February, with business sentiment moderating slightly.
Technical Outlook: USD/INR Faces Key Resistance Levels
The technical outlook for USD/INR remains cautiously positive, with the pair holding above the key 100-day Exponential Moving Average (EMA) on the daily chart. However, the 14-day Relative Strength Index (RSI) hovering near 50 suggests a neutral market sentiment in the short term, with potential consolidation ahead.
The immediate resistance for USD/INR lies at 87.53, the high reached on February 28. If the pair manages to break above this level, attention may shift toward an all-time high near 88.00, followed by 88.50. On the downside, the first support level to watch is 86.48, the low of February 21, with further declines potentially leading the pair toward 86.14 (January 27 low) and 85.60 (January 6 low).
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