The Indian Rupee (INR) experienced a recovery during Monday’s Asian trading session, moving upwards after enduring its most challenging week in a year and a half. The currency’s strengthening can be attributed to consistent interventions by the Reserve Bank of India (RBI) and a decline in global crude oil prices, which have alleviated some downward pressure. However, ongoing foreign investment outflows and a renewed demand for the US Dollar in the non-deliverable forwards (NDF) market are likely to limit the Rupee’s upward momentum. Market participants are particularly focused on the upcoming inauguration of President-elect Donald Trump, set for 17:00 GMT, as his anticipated policies may impact emerging market currencies, including India’s.
As of January 10, India’s foreign exchange reserves had decreased for the sixth consecutive week, falling to a ten-month low of $625.9 billion. This situation underscores RBI’s cautious approach regarding the utilization of reserves to mitigate excessive volatility in the currency market amid global economic challenges. These reserves incorporate India’s reserve tranche position with the International Monetary Fund (IMF), reflecting the country’s significant financial standing.
In terms of economic forecasts, the World Bank anticipates that India’s economy will grow by 6.7% in the upcoming fiscal year beginning in April, a slight uptick from the current year’s projected growth of 6.5%, which has seen a decline from 8.2% in the prior period.
On the US front, housing starts have shown a significant increase of 15.8% in December, rising to 1.499 million from a revised figure of 1.294 million, outpacing market expectations. Meanwhile, building permits in the US declined slightly but remained above consensus estimates.
Despite the recent gains, the INR continues to see a bullish trend in the USD/INR pair, characterized by higher highs and higher lows, maintaining positions above the key 100-day Exponential Moving Average (EMA). However, with the 14-day Relative Strength Index (RSI) showing overbought levels beyond 70.00, a period of consolidation or temporary weakness may be on the horizon. For the INR to challenge the psychological resistance at 87.00, it must first overcome the recent high of 86.69. Conversely, if selling pressures push the INR below the January 15 low of 86.30, further declines could follow, with key support levels at 85.85 and 85.65 also in sight.
