The USD/INR pair rose during Monday’s early European session, trading near an all-time high as month-end US Dollar (USD) demand and external pressures weakened the Indian Rupee (INR). A strong USD, bolstered by the Federal Reserve's (Fed) hawkish stance, weighed heavily on emerging market currencies, including the INR.
Key Drivers Behind USD/INR Gains
US Dollar Strength: Persistent USD strength, supported by the Fed’s cautious approach to rate cuts and concerns about inflation, continues to undermine the INR.
Month-End Importer Demand: Seasonal demand for the USD by Indian importers adds upward pressure on the USD/INR pair.
Weak Offshore Chinese Yuan: Declines in the offshore Yuan amplify broader emerging market currency weakness, indirectly affecting the Rupee.
RBI Intervention and Upcoming Data
The Reserve Bank of India (RBI) is expected to intervene in the forex market to curb the Rupee’s depreciation. Historically, the RBI uses its foreign exchange reserves to stabilize the INR, and further action could limit immediate losses. However, India’s forex reserves have declined steadily, hitting a multi-month low of $654.857 billion last week, compared to the September peak of $704.89 billion.
Market participants are closely watching upcoming US data releases, including December Consumer Confidence and the Chicago Fed National Activity Index later on Monday, followed by Durable Goods Orders on Tuesday. These indicators will likely influence the USD’s trajectory.
Technical Outlook: Bullish Momentum Intact
The USD/INR pair remains in a strong uptrend, trading above the 100-day Exponential Moving Average (EMA) with a 14-day Relative Strength Index (RSI) above 65.40, signaling bullish momentum. Key technical levels include:
Upside Resistance: The next resistance lies at 85.20, with potential gains extending to 85.50.
Downside Support: Initial support is at 84.88, with a break lower targeting 84.19 (100-day EMA).
Broader Challenges for the Rupee
Trade Deficit: India’s higher trade deficit, driven by elevated import costs, continues to pressure the INR.
Slow Growth: Domestic equity outflows and slower economic growth further erode investor confidence.
Hawkish Fed vs. RBI: Diverging monetary policy paths between the Fed and RBI maintain a bullish bias for USD/INR.
Outlook
The USD/INR pair is poised to maintain its upward trajectory, supported by strong USD fundamentals and weak domestic factors for the INR. While RBI interventions may provide temporary relief, broader structural challenges and the Fed’s hawkish outlook keep the pair biased toward further gains.
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