- The Indian Rupee weakens to near a record low in Thursday’s early European session.
- The weakening in the Chinese Yuan, firmer USD and dovish expectations following Malhotra's appointment weigh on the INR.
- The Indian CPI inflation and US PPI data will be the highlights on Thursday.
The Indian Rupee (INR) loses ground to near an all-time low on Thursday. A sharp decline in the Chinese Yuan and increased US Dollar (USD) from importers and foreign banks might drag the local currency lower. Furthermore, the appointment of career bureaucrat Sanjay Malhotra as the next governor of the Reserve Bank of India (RBI) prompted traders to raise their expectations on the interest rate cuts, which could exert some selling pressure on the INR.
Nonetheless, the downside for the Indian Rupee might be limited as the RBI might step in to limit further depreciation. The Indian central bank often intervenes by selling USD to prevent steep INR weakness.
Traders will keep an eye on the US November Producer Price Index (PPI) and weekly Initial Jobless Claims, which are due later on Thursday. On the Indian docket, the CPI inflation, Industrial Output and Manufacturing Output data will be released on Thursday.
Indian Rupee remains weak amid multiple challenges
- India’s GDP growth is estimated to rise to 7% in FY26, led by a capex cycle reboot, tailwinds from back-ended fiscal spending in FY25, a cut in the cash reserve ratio (CRR), and likely further macro-prudential easing, which could help revive credit growth, according to Axis Bank.
- Economists at Capital Economics anticipate a 25 bps cut in India’s repo rate at Malhotra’s first MPC meeting in February, if not in an unscheduled meeting earlier. Economists estimated that the cut would come in April under Das’ leadership.
- The US Consumer Price Index (CPI) inflation rose to 2.7% YoY in November from 2.6% in October, the US Bureau of Labor Statistics showed 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, compared to 3.3% during the same period. On a monthly basis, the headline CPI increased 0.3% MoM, while the core CPI rose 0.3% MoM in November.
- 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.
USD/INR keeps the bullish vibe in the longer term
The Indian Rupee softens on the day. The USD/INR pair paints a positive picture on the daily chart as the pair is well-supported above the key 100-day Exponential Moving Average (EMA). Nonetheless, the 14-day Relative Strength Index (RSI) is located above the midline near 67.70, suggesting the support level is more likely to hold than to break.
The potential resistance level emerges at 85.00, representing the ascending trend channel and the psychological level. Extended gains above this level could see a 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 the mentioned level could pave the way to 84.22, the low of November 25, followed by 84.10, the 100-day EMA.
RBI FAQs
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.
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.
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.
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.
Recommended content
Editors’ Picks
AUD/USD holds solid-Aussie jobs data-led gains above 0.6400
AUD/USD holds sizeable gains above 0.6400 early Thursday, capitalizing on stellar Australian jobs data, which pointed to a still resilient labour market and forced investors to scale back their bets for a rate cut by the RBA in February.
USD/JPY extends losses to near 152.00 amid risk-aversion, US Dollar retreat
USD/JPY drifts lower to near 152.00 in Thursday's Asian trading, snapping a three-day winning streak to a two-week high.The pair remains weighed down by a broad US Dollar pullback, risk-aversion and uncertainty around the BoJ rate hike next week. Focus shifts to US data.
Gold buyers take a breather ahead of US PPI inflation data
Gold's price seems to have paused its four-day recovery stint in Asian trading on Thursday after hitting fresh five-week highs near $2,725. Traders assess the odds of US Federal Reserve (Fed) interest rate cuts next year amid the ongoing upsurge in the US Treasury bond yields across curve.
Ripple's XRP could extend its rally to $4.75 after recent consolidation, rising profit-taking poses threat
Ripple's XRP continued its rally on Wednesday as it looks to test the upper boundary of a key flag channel. Following the recent price rise, investors booked profits worth nearly $800 million while options traders bet on the remittance-based token hitting the $5 mark.
BTC faces setback from Microsoft’s rejection
Bitcoin price hovers around $98,400 on Wednesday after declining 4.47% since Monday. Microsoft shareholders rejected the proposal to add Bitcoin to the company’s balance sheet on Tuesday.
Best Forex Brokers with Low Spreads
VERIFIED Low spreads are crucial for reducing trading costs. Explore top Forex brokers offering competitive spreads and high leverage. Compare options for EUR/USD, GBP/USD, USD/JPY, and Gold.