The Indian Rupee (INR) weakened during Thursday’s trading session, largely due to increasing demand for the US Dollar (USD) among importers and slower foreign investment inflows. The sustained interest in the USD is coupled with rising yields on US Treasury bonds, which further complicates the INR’s outlook. As market participants prepare for the release of India’s HSBC Manufacturing Purchasing Managers Index (PMI) for December and the US weekly Initial Jobless Claims, the rupee continues to face downward pressure.
Adjustments in the foreign exchange market reflect concerns over India’s economic growth trajectory. The INR’s depreciation is exacerbated by a robust dollar, which remains around the 108.48 level, with market analysts pointing to sluggish domestic economic indicators and a widening trade deficit as contributing factors. Furthermore, the Reserve Bank of India (RBI) is expected to take action to stabilize the currency market and mitigate excessive volatility.
Recent fiscal data supports the INR’s weak position, indicating that India’s fiscal deficit for the April-November period of FY25 has reached 8.47 trillion rupees (approximately $98.9 billion), accounting for 52.5% of the annual target. This marks an increase from the 50.7% deficit recorded the previous year, raising concerns over fiscal sustainability. Meanwhile, the country’s real GDP growth is projected at 6.6% for the fiscal year 2024-25, which reflects a cautious economic outlook moving forward.
In the US, the Housing Price Index demonstrated a modest increase of 0.4% month-over-month for October, slightly below market expectations. Meanwhile, the S&P/Case-Shiller Home Price Indices experienced a 4.2% year-over-year increase in October, also beating expectations despite a decline from the previous figure.
In technical terms, the USD/INR pair has risen above its recent trend channel, yet the current market dynamics hint at potential consolidation as evidenced by an overbought status indicated by the Relative Strength Index (RSI). Immediate resistance for the pair stands at 85.81, and if this level is breached, it could pave the way for further upward movements toward the psychological level of 86. However, support levels at 85.50 and 85.00 remain critical to watch, which could trigger further selling pressure if surpassed.
