USD/INR continues its bull run amid consistent foreign outflows from India
- The Indian Rupee slides further against the US Dollar, with USD/INR refreshing all-time highs around 91.00.
- India’s retail CPI rose at a faster pace of 0.7% in November, but is still below the RBI’s tolerance band of 2%-6%.
- Investors await US NFP data for fresh cues on the Fed’s monetary policy outlook.
The Indian Rupee (INR) starts the week on a bearish note against the US Dollar (USD), extends its losing streak for the third trading day. The USD/INR pair refreshes its all-time high near 91.00 as the continuous outflow of foreign funds from the Indian stock market amid the absence of any trade deal announcement between the United States (US) and India is consistently hurting the Indian Rupee.
The US and India have not yet reached a consensus, even as US Trade Representative Jamieson Greer stated last week that the latest offer by New Delhi is the "best ever" Washington has seen.
So far in December, Foreign Institutional Investors (FIIs) have remained net sellers in all trading days, and have offloaded stake worth Rs. 19,605.51 crore.
On the domestic front, India’s retail Consumer Price Index (CPI) has come in higher at 0.71% on an annualized basis, as expected, from 0.25% in October. However, it remains well below the Reserve Bank of India’s (RBI) tolerance band of 2%-6%, keeping the door open for further interest rate cuts.
Earlier this month, the RBI also reduced its Repo Rate by 25 basis points (bps) to 5.25% and kept a neutral stance on the monetary policy outlook.
In Monday’s session, investors will focus on the Wholesale Price Index (WPI) Inflation data for November, which will be published at 06:30 GMT. The data is expected to show that inflation at the producer level deflated at a moderate pace of 0.6% year-on-year compared to a 1.21% decline seen in October.
Daily digest market movers: Trump reduces options for Fed Chair’s potential candidate to two
- The Indian Rupee continues to underperform the US Dollar, even as the latter remains on tenterhooks amid expectations that the Federal Reserve (Fed) will deliver more interest rate cuts next year than what it had signaled in the monetary policy announcement on Wednesday.
- At the time of writing, the US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, struggles near its eight-week low of 98.13 posted on Thursday.
- According to the CME FedWatch tool, there is a 64.3% chance that the Fed will cut interest rates at least two times by the end of 2026. While the Fed’s dot plot showed that policymakers see the Federal Funds Rate falling to 3.4% by 2026, indicating one more interest rate cut from current levels of 3.50%-3.75%.
- Fed dovish bets for the next year are backed by firm hopes of Chairman Jerome Powell’s replacement with a US President Donald Trump’s candidate, whose decisions will be biased by Trump’s economic agenda.
- US President Trump has criticized Fed Chair Powell several times for holding interest rates at higher levels since his return to the White House. Trump stated last week that he is happy with the Fed easing monetary conditions, but wants more from them.
- Meanwhile, a report from The Wall Street Journal (WSJ) showed on Friday that US President Trump is leaning towards either former National Economic Council Director Kevin Hassett or Fed Governor Kevin Warsh to replace Chairman Powell this year. "I think you have Kevin and Kevin. They’re both - I think the two Kevins are great," Trump said.
- On the domestic front, investors will pay close attention to the US Nonfarm Payrolls (NFP) data for November, which will be released on Tuesday. Investors will pay close attention to the US NFP data as its impact will be significant on market expectations for the Fed’s monetary policy outlook, knowing that weak labor market conditions majorly drove a 100 bps reduction in interest rates this year.
Technical Analysis: USD/INR jumps to near 91.00
In the daily chart, USD/INR trades at 90.9390. The 20-Exponential Moving Average (EMA) at 89.9414 rises and price holds above it, keeping the short-term trend pointed higher. The rising trend line from 88.6408 underpins the bullish bias.
The 14-day Relative Strength Index (RSI) at 71.70 sits in overbought territory, which could cap near-term gains as momentum stretches.
The upward-sloping average should act as first support on dips, while a daily close below it would signal a deeper correction towards the round-level figure of 90.00. While, a sustained strength above the current level would extend the advance towards 92.00.
(The technical analysis of this story was written with the help of an AI tool)
Indian Rupee FAQs
The Indian Rupee (INR) is one of the most sensitive currencies to external factors. The price of Crude Oil (the country is highly dependent on imported Oil), the value of the US Dollar – most trade is conducted in USD – and the level of foreign investment, are all influential. Direct intervention by the Reserve Bank of India (RBI) in FX markets to keep the exchange rate stable, as well as the level of interest rates set by the RBI, are further major influencing factors on the Rupee.
The Reserve Bank of India (RBI) actively intervenes in forex markets to maintain a stable exchange rate, to help facilitate trade. In addition, the RBI tries to maintain the inflation rate at its 4% target by adjusting interest rates. Higher interest rates usually strengthen the Rupee. This is due to the role of the ‘carry trade’ in which investors borrow in countries with lower interest rates so as to place their money in countries’ offering relatively higher interest rates and profit from the difference.
Macroeconomic factors that influence the value of the Rupee include inflation, interest rates, the economic growth rate (GDP), the balance of trade, and inflows from foreign investment. A higher growth rate can lead to more overseas investment, pushing up demand for the Rupee. A less negative balance of trade will eventually lead to a stronger Rupee. Higher interest rates, especially real rates (interest rates less inflation) are also positive for the Rupee. A risk-on environment can lead to greater inflows of Foreign Direct and Indirect Investment (FDI and FII), which also benefit the Rupee.
Higher inflation, particularly, if it is comparatively higher than India’s peers, is generally negative for the currency as it reflects devaluation through oversupply. Inflation also increases the cost of exports, leading to more Rupees being sold to purchase foreign imports, which is Rupee-negative. At the same time, higher inflation usually leads to the Reserve Bank of India (RBI) raising interest rates and this can be positive for the Rupee, due to increased demand from international investors. The opposite effect is true of lower inflation.
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