• The Indian Rupee weakens near an all-time low in Thursday’s early European session. 

• A stronger USD, lacklustre sentiment in domestic equity markets, and sustained outflow of foreign funds weigh on the INR. 

• Investors await the Fedspeak on Thursday for a fresh impetus.   
   

  

The Indian Rupee (INR) declines to near a fresh record low on Thursday. The local currency remains under pressure on the back of a stronger US Dollar (USD) and higher prices. Slowing economic growth and foreign outflows from also undermine the INR.

On the other hand, the Reserve Bank of India (RBI) is likely to sell the USD to limit the INR’s losses. Investors will keep an eye on the Fedspeak on Thursday for more cues about the US interest rate this year. On Friday, the attention will shift to the US employment data for December, including the (NFP), Unemployment Rate and Average Hourly Earnings.

Indian Rupee faces pressure amid a firmer USD and concerns over India's slowing economic growth 

• The Indian Rupee is likely to weaken to 86.8 per dollar this quarter, according to MUFG, while Citigroup Inc. expects it to fall to 86.35. USD/INR fell 0.2% to a new record closing low of 85.8550 on Wednesday. 

• India's economic growth rate is estimated to slip to a four-year low of 6.4% in FY25, down from 8.2% in FY24.

• The FOMC minutes from the Fed's December 17-18 meeting showed policymakers agreed inflation was likely to continue slowing this year but also saw a rising risk that price pressures could remain sticky due to the potential effect of Donald Trump's policies.

• The US weekly Initial Jobless Claims for the week ending January 4 declined to 201K from the previous week's print of 211K, according to the US Department of Labor (DOL) on Wednesday. This reading came in better than the market expectation of 218K. 

• Fed Governor Christopher Waller said on Wednesday that inflation should continue falling in 2025 and allow the US central bank to further cut interest rates, though at an uncertain pace, per Reuters.   
   

USD/INR maintains its positive view, but an overbought RSI warrants caution for bulls

The Indian Rupee trades in negative territory on the day. The strong bullish outlook of the USD/INR pair remains intact as the pair is well-supported above the key 100-day Exponential Moving Average (EMA) on the daily timeframe.

Nonetheless, the 14-day Relative Strength Index (RSI) moves beyond the 70.00 mark, warranting some caution for bulls. The overbought condition suggests that further consolidation cannot be ruled out before positioning for any near-term USD/INR appreciation.

The crucial resistance level for emerges at the 85.95-86.00 zone, representing the all-time high and the psychological mark. A decisive break above this level could see a rally to 86.50.

On the flip side, the initial support level for the pair is seen at 85.65, the low of January 7. A breach of the mentioned level could drag the pair lower to the next downside target at 84.51, the 100-day EMA.  

RBI FAQs

What is the role of the Reserve Bank of India?

The role of the Reserve Bank of India (RBI), in its own words, is "..to maintain price stability while keeping in mind the objective of growth.” This involves maintaining the inflation rate at a stable 4% level primarily using the tool of interest rates. The RBI also maintains the exchange rate at a level that will not cause excess volatility and problems for exporters and importers, since India’s economy is heavily reliant on foreign trade, especially Oil.

How do the decisions of the Reserve Bank of India affect the Rupee?

The RBI formally meets at six bi-monthly meetings a year to discuss its monetary policy and, if necessary, adjust interest rates. When inflation is too high (above its 4% target), the RBI will normally raise interest rates to deter borrowing and spending, which can support the Rupee (INR). If inflation falls too far below target, the RBI might cut rates to encourage more lending, which can be negative for INR.

Does the Reserve Bank of India directly intervene in FX markets?

Due to the importance of trade to the economy, the Reserve Bank of India (RBI) actively intervenes in FX markets to maintain the exchange rate within a limited range. It does this to ensure Indian importers and exporters are not exposed to unnecessary currency risk during periods of FX volatility. The RBI buys and sells Rupees in the spot market at key levels, and uses derivatives to hedge its positions.

Your Trusted Top Broker for Superior Trading

SmileTradeFX stands out as a premier broker, offering exceptional trading platforms, low spreads, and fast execution to ensure a seamless trading experience for all levels of traders.

©️Smiletradefx.com – Licensed under SERC Cambodia.  
𝐓𝐫𝐚𝐝𝐞 𝐰𝐢𝐭𝐡 𝐚 𝐬𝐦𝐢𝐥𝐞  
🧑‍💼 Business Support: https://t.me/sm.business.support  
👨‍🔧 Technical Support: https://t.me/sm.technical.support  
💱 Liquidity Support: https://t.me/sm.liquidity.support