The Indian Rupee (INR) experienced a decline during Wednesday’s Asian trading session, primarily driven by robust demand for the US Dollar (USD), rising crude oil prices, and ongoing capital outflows from equity markets. Investors are also preparing for the release of the US Consumer Price Index (CPI) inflation data later in the day, which is expected to significantly influence market movements.
Although the INR is weakening, analysts suggest that any sharp depreciation may be constrained. The Reserve Bank of India (RBI) adopts a flexible stance on currency levels, avoiding a fixed target for the rupee while allowing it to respond to market dynamics. This approach is coupled with interventions designed to prevent excessive fluctuations in the exchange rate, reflecting a broader strategy aimed at maintaining currency stability amidst global pressures.
Recent data released by India’s Ministry of Commerce and Industry revealed that Wholesale Price Index (WPI) inflation increased to 2.37% in December, marking an upturn from November’s figure of 1.89% and exceeding the anticipated 2.30%. Meanwhile, the Consumer Price Index (CPI) showed a slight increase year-on-year of 5.22% in December, down from a previous reading of 5.48% but still below forecasts of 5.3%. In contrast, US Producer Price Index (PPI) data indicated a 3.3% annual rise in December, slightly under the expected 3.4%.
As the INR continues to trend downward, the USD/INR pair demonstrates a persistent upward momentum, characterized by higher highs and lows. The currency pair remains above the crucial 100-day Exponential Moving Average (EMA), although the Relative Strength Index (RSI) indicates overbought conditions at over 70, suggesting a potential need for consolidation.
Currently, the USD/INR faces immediate resistance at a record high of 86.69, with expectations of testing the psychological 87.00 level if momentum persists. On the downside, should the pair dip below the support level of 85.85, established on January 10, it could move further towards 85.65 and eventually test the significant round number of 85.00.
