The Indian Rupee is currently struggling against the backdrop of significant foreign exchange outflows. The exchange rate of the USD/INR remains close to its historic peak of 84.14 as traders respond to the recent inflation figures that signal potential challenges ahead for the Reserve Bank of India (RBI).
India’s Consumer Price Index (CPI) has registered a nine-month high of 5.49% year-over-year for September, a substantial jump from 3.65% in the previous month and significantly exceeding expectations of 5.0%. This spike in inflation places considerable pressure on the RBI, which has a target of around 4%, effectively cooling investor anticipation regarding imminent rate cuts.
Despite this, there may be a degree of support for the Indian Rupee stemming from declining global oil prices. As the world’s third-largest oil importer, India is likely to benefit from lower crude prices, which are currently under pressure due to concerns over global demand amidst ongoing geopolitical tensions in the Middle East. Recently, West Texas Intermediate (WTI) crude was trading around $70.30 per barrel, continuing a downward trend.
Meanwhile, the US Dollar is gaining strength, aided by encouraging employment figures and CPI data that have tempered expectations for drastic loosening by the Federal Reserve. Markets are currently predicting a cumulative reduction of 125 basis points over the next year, with a nearly certain probability of a 25-basis-point cut anticipated in November. Observations from Fed officials suggest a cautious approach, with expectations of only one more rate cut this year.
On the investment front, foreign institutional investors have notably withdrawn from the market, selling ₹37.32 billion ($444 million) in stocks over the past eleven sessions, while domestic investors have made net purchases of ₹22.78 billion.
Currently, the USD/INR pair maintains a position around 84.00. If it breaks beneath this level, it could signal a shift in the prevailing bullish sentiment. Conversely, continued upward momentum would face resistance at 84.14, with a potential surge toward the upper boundary of an ascending channel estimated to be around 84.35. If the pair does manage to drop below the significant support at 84.00, it may target approximately 83.97, the nine-day Exponential Moving Average.
