The Indian Rupee (INR) showed signs of recovery in the early hours of Tuesday’s Asian trading session after hitting an all-time low in the previous session. The currency’s rebound comes in a challenging environment marked by rising crude oil prices and persistent capital outflows from foreign investors. Additionally, the strength of the US Dollar, bolstered by positive US employment figures, adds pressure on the INR, with expectations building that the US Federal Reserve may scale back on interest rate cuts this year.
Market participants are keenly anticipating the upcoming release of India’s Wholesale Price Index (WPI) inflation data later on Tuesday. In the United States, economic attention will also focus on the Producer Price Index (PPI) report for December. Keeping abreast of central bank movements, the Federal Reserve’s Kansas City President is scheduled to address the public today, which could influence market sentiment.
As the rupee grapples with multiple challenges, recent data revealed a slight moderation in India’s retail inflation, measured by the Consumer Price Index (CPI), which eased to 5.22% year-on-year for December, down from 5.48% in November. This figure came in marginally below market expectations. Meanwhile, the Consumer Food Price Index reflected a sharper increase in food inflation, clocking in at 8.39% year-on-year for December.
The Reserve Bank of India is expected to remain active in mitigating further depreciation of the rupee, potentially through intervention strategies involving the sale of US dollars in both spot and forward markets. Meanwhile, India has seen foreign funds withdrawing roughly $2 billion from local equities since the beginning of the year, alongside significant sales in the fixed-income sector.
On the trading front, while the USD/INR pair has displayed bullish momentum, the market entry point demands caution due to signs of an overbought condition in the short term. The primary resistance to watch is the previous peak of 86.69, with the potential for upward momentum towards the psychological level of 87.00. Conversely, if the pair falters, support is situated at 85.85, with further drops possible if that level fails to hold.
