In the Monday trading session, the Indian Rupee (INR) faced downward pressure as demand for the US Dollar (USD) remained elevated. This decline is compounded by a weaker performance from other Asian currencies, particularly the Chinese Yuan. Observers are closely watching the impact of a potential dovish shift in monetary policy following the recent appointment of a new governor at the Reserve Bank of India (RBI).
Despite these challenges, the RBI is likely to continue its market interventions by selling USD, which may help to mitigate some of the losses experienced by the INR. Market participants are also anticipating important economic indicators, including the preliminary Purchasing Managers Index (PMI) and Wholesale Price Index (WPI) inflation data, which are set for release later in the day. Additionally, attention is turning to the upcoming monetary policy announcement from the US Federal Reserve, which is expected to clarify interest rate projections.
The Indian Rupee’s recent performance has shown a year-to-date depreciation of 1.5% against the US Dollar, although it has generally outperformed many other Asian currencies, partly due to the RBI’s interventions. Recent figures reveal that India’s foreign exchange reserves have dipped by $3.2 billion, reaching $654.86 billion, the lowest level in over five months.
The recent leadership transition at the RBI could lead to speculation regarding an increased likelihood of a rate cut in the upcoming February policy meeting. Market expectations have shifted significantly, with anticipations of a 25-basis-point cut becoming almost fully priced in for the Federal Reserve’s December meeting, up from a 78% probability just a week prior.
On a technical note, the outlook for the USD/INR pair remains bullish in the long term. As the currency pair trades softer on the day, it continues to show signs of upward momentum, supported by key technical indicators. Critical resistance levels are established at the psychological level of 85.00, with a breakthrough potentially triggering a rally towards 85.50. Conversely, initial support is noted at 84.75; if this level fails to hold, further declines may see the pair retreat to targets around 84.22 and 84.12, respectively.
