The Indian Rupee (INR) is showing signs of recovery during Thursday’s trading session, yet its upward momentum appears constrained. The recent strength of the US Dollar (USD) and rising bond yields, partly influenced by political developments in the United States, are contributing to this limitation. Market observers predict a range-bound trading environment for the INR as the Reserve Bank of India (RBI) is anticipated to actively engage in the currency market by selling USD to mitigate excessive fluctuations.
In the short term, the INR faces challenges from ongoing foreign fund outflows and volatility in both bond and foreign exchange markets. Investors are keenly awaiting the US Federal Reserve’s upcoming meeting, which is widely believed will result in a 25 basis point interest rate reduction. Additionally, the release of the latest weekly Initial Jobless Claims in the US will be closely watched for its potential market impact.
Recent data reflects a robust performance in the Indian services sector, with the HSBC India Services PMI climbing from 57.7 in September to 58.5 in October, surpassing earlier estimates. The growth is attributed to strong output, heightened consumer demand, and an increase in job creation within the sector.
Ahead of the RBI’s next policy meeting, a slight majority of economists forecast a 25 basis point cut in the benchmark rate to 6.25% in December. Financial markets are currently reflecting significant expectations for this reduction, with high probabilities assigned to similar rate movements later in the year. However, there are indications that traders are adjusting their predictions for the rate cuts expected in 2024.
Technically, the outlook for the USD/INR pair remains positive, maintaining positioning above the crucial 100-day Exponential Moving Average (EMA). However, the 14-day Relative Strength Index (RSI) suggests overbought conditions, indicating that consolidation may be necessary before any significant further appreciation of the INR. Key resistance levels for USD/INR are seen around 84.30 and 84.50, while initial support lies in the 84.05 – 84.10 range, with potential for deeper declines should the pair break below 83.80.
