In Thursday’s Asian session, the Indian Rupee (INR) weakened. The weakening of the Chinese Yuan, a stronger US Dollar (USD), and dovish expectations following Sanjay Malhotra’s appointment as the next governor of the Reserve Bank of India (RBI) are weighing on the INR.
The INR had hit a record low in the previous session and on Thursday, a sharp decline in the Chinese Yuan along with increased demand for the USD from importers and foreign banks might drag the local currency even lower. Moreover, Malhotra’s appointment has made traders raise their expectations of interest rate cuts, which could also put some selling pressure on the INR.
RBI May Limit INR’s Downside
However, the downside for the Indian Rupee might be limited as the Reserve Bank of India (RBI) often intervenes by selling USD to prevent the INR from weakening too much.
Key Data Releases to Watch
Traders will be keeping an eye on several important data releases on Thursday. The US will release its November Producer Price Index (PPI) and weekly Initial Jobless Claims. In India, the CPI inflation, Industrial Output, and Manufacturing Output data will be out.
INR Faces Challenges Amid Growth Projections and Rate Cut Expectations
India’s GDP Growth Estimates
Axis Bank estimates that India’s GDP growth will rise to 7% in FY26. This is expected to be driven by a reboot of the capex cycle, tailwinds from back-ended fiscal spending in FY25, a cut in the cash reserve ratio (CRR), and likely further macro-prudential easing that could help revive credit growth.
Rate Cut Expectations
Economists at Capital Economics anticipate a 25 bps cut in India’s repo rate at Malhotra’s first MPC meeting in February, or possibly even in an earlier unscheduled meeting. Previously, economists had estimated the cut would come in April under Das’ leadership.
USD/INR’s Bullish Outlook in the Longer Term
Current Situation of USD/INR
The Indian Rupee softened on Thursday. The USD/INR pair looks positive on the daily chart as it is well-supported above the key 100-day Exponential Moving Average (EMA). The 14-day Relative Strength Index (RSI) is located above the midline near 67.70, indicating that the support level is more likely to hold than to break.
Resistance and Support Levels
The potential resistance level appears at 85.00, which represents the ascending trend channel and a psychological level. If the pair extends gains above this level, it could rally to 85.50. On the other hand, the lower boundary of the trend channel at 84.70 acts as an initial support level for USD/INR. Sustained trading below this level could lead to a fall to 84.22, which was the low of November 25, followed by 84.10, the 100-day EMA.
US CPI Data Update
The US Consumer Price Index (CPI) inflation rose to 2.7% YoY in November from 2.6% in October, as shown by the US Bureau of Labor Statistics on Wednesday. This reading was in line with the market consensus. The core CPI, excluding volatile food and energy prices, climbed 3.3% YoY in November, the same as during the same period. On a monthly basis, the headline CPI increased 0.3% MoM, and the core CPI also rose 0.3% MoM in November.
Fed Rate Cut Expectations
Fed funds futures are pricing in a roughly 95% chance that the US central bank lowers rates in the December meeting, according to CME’s FedWatch Tool.
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