The Indian Rupee (INR) experienced a decline during Tuesday’s Asian trading session, continuing its downtrend after reaching its lowest closing price in the preceding day. This downward movement is attributed to a range of factors, including a weakening Chinese Yuan, an uptick in demand for the US Dollar, and the anticipation of prolonged interest rate policies from the Federal Reserve. Notably, the market is also anticipating the release of India’s November Federal Fiscal Deficit and the third quarter (Q3) Trade Deficit figures later in the day.
The prevailing headwinds for the INR include expectations of enduring high US interest rates, sluggish capital inflows, and external pressures from potential tariff changes expected under the new US administration. Despite this challenging environment, the Reserve Bank of India (RBI) potentially aims to mitigate drastic declines by stepping into non-deliverable forward (NDF) markets. The trading dynamics in the market may see reduced activity as the week is shortened by holidays, creating a quieter atmosphere for investors.
Analysts suggest that India’s Current Account Deficit (CAD) will hold steady at around 1.1% of GDP for the fiscal year 2024-25, indicating ongoing vulnerabilities in India’s economic landscape. The net selling by foreign portfolio investors has surpassed $10 billion in the current quarter, according to depository data, pointing to a bearish sentiment among international investors towards Indian equities and bonds.
On a technical analysis front, while the USD/INR pair maintains a bullish outlook in the long term, the momentum indicators suggest that the Rupiah may be entering an overbought territory. The primary resistance for the pair is set at the all-time high of 85.81, with a potential breakthrough piercing through this threshold likely to attract further buying interest, possibly leading to the psychological level of 86.00. Conversely, a sustained trade beneath the support level of 85.45 could reveal further downside, targeting the 85.00 mark and potentially reaching critical support at 84.32, represented by the 100-day Exponential Moving Average.
