- 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 all-time low on Thursday. The local currency remains under pressure on the back of a stronger US Dollar (USD) and higher crude oil prices. Slowing economic growth and foreign outflows from stocks 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 outlook this year. On Friday, the attention will shift to the US employment data for December, including the Nonfarm Payrolls (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 USD/INR 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.
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.
Indian economy FAQs
The Indian economy has averaged a growth rate of 6.13% between 2006 and 2023, which makes it one of the fastest growing in the world. India’s high growth has attracted a lot of foreign investment. This includes Foreign Direct Investment (FDI) into physical projects and Foreign Indirect Investment (FII) by foreign funds into Indian financial markets. The greater the level of investment, the higher the demand for the Rupee (INR). Fluctuations in Dollar-demand from Indian importers also impact INR.
India has to import a great deal of its Oil and gasoline so the price of Oil can have a direct impact on the Rupee. Oil is mostly traded in US Dollars (USD) on international markets so if the price of Oil rises, aggregate demand for USD increases and Indian importers have to sell more Rupees to meet that demand, which is depreciative for the Rupee.
Inflation has a complex effect on the Rupee. Ultimately it indicates an increase in money supply which reduces the Rupee’s overall value. Yet if it rises above the Reserve Bank of India’s (RBI) 4% target, the RBI will raise interest rates to bring it down by reducing credit. Higher interest rates, especially real rates (the difference between interest rates and inflation) strengthen the Rupee. They make India a more profitable place for international investors to park their money. A fall in inflation can be supportive of the Rupee. At the same time lower interest rates can have a depreciatory effect on the Rupee.
India has run a trade deficit for most of its recent history, indicating its imports outweigh its exports. Since the majority of international trade takes place in US Dollars, there are times – due to seasonal demand or order glut – where the high volume of imports leads to significant US Dollar- demand. During these periods the Rupee can weaken as it is heavily sold to meet the demand for Dollars. When markets experience increased volatility, the demand for US Dollars can also shoot up with a similarly negative effect on the Rupee.
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
EUR/USD recovers above 1.0300, markets await comments from Fed officials
EUR/USD gains traction and trades above 1.0300 on Thursday despite mixed German Industrial Production and Eurozone Retail Sales data. Retreating US bond yields limits the USD's gains and allows the pair to hold its ground as market focus shifts to Fedspeak.
GBP/USD rebounds from multi-month lows, trades above 1.2300
GBP/USD erases a portion of its daily gains and trades above 1.2300 after setting a 14-month-low below 1.2250. The pair recovers as the UK gilt yields correct lower after surging to multi-year highs on a two-day gilt selloff. Markets keep a close eye on comments from central bank officials.
Gold climbs to new multi-week high above $2,670
Gold extends its weekly recovery and trades at its highest level since mid-December above $2,670. The benchmark 10-year US Treasury bond yield corrects lower from the multi-month high it touched above 4.7% on Wednesday, helping XAU/USD stretch higher.
Bitcoin falls below $94,000 as over $568 million outflows from ETFs
Bitcoin continues to edge down, trading below the $94,000 level on Thursday after falling more than 5% this week. Bitcoin US spot Exchange Traded Funds recorded an outflow of over $568 million on Wednesday, showing signs of decreasing demand.
How to trade NFP, one of the most volatile events Premium
NFP is the acronym for Nonfarm Payrolls, arguably the most important economic data release in the world. The indicator, which provides a comprehensive snapshot of the health of the US labor market, is typically published on the first Friday of each month.
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.