USD/INR continues bull run amid continuous foreign outflows ahead of US NFP data
- The Indian Rupee continues to decline against the US Dollar amid consistent FIIs selling in the Indian stock market.
- India’s HSBC Composite PMI drops to 58.9 in November from 59.7 in October.
- Investors await the US NFP data for fresh cues on the Fed’s monetary policy outlook.
The Indian Rupee (INR) extends its losing streak for the fourth trading day against the US Dollar (USD) on Tuesday. The USD/INR pair stretches its bull run to near 91.25 as the continuous outflow of foreign funds from the Indian stock market amid trade frictions between the United States (US) and India has remained a major drag on the Indian Rupee.
A report from Reuters has also shown that the USD/INR pair has remained firm due to strong dollar demand linked to likely maturity of positions in the non-deliverable forwards (NDF) market and continued foreign portfolio outflows.
So far this month, Foreign Institutional Investors (FIIs) have offloaded stake worth Rs. 21,073.83 crore in the Indian equity market, while remaining net sellers in all trading days.
Meanwhile, better-than-projected India’s Trade Deficit Government data for November has failed to lift investors’ sentiment toward the Indian Rupee. On Monday, the data showed that India’s merchandize trade deficit shrank to $24.53 billion from $41.68 billion in October, beating a Reuters poll estimate of $32 billion. The trade deficit report also showed that India’s overall goods exports for November rose 19%, largely contributed by a 22.6% increase in merchandize transport to the US.
On the economic data front, India’s HSBC Composite Purchasing Managers’ Index (PMI) dropped to 58.9 from 59.7 in November, suggesting that the overall business activity expanded but at a moderate pace. The overall private sector output growth cooled down due to a slowdown in both manufacturing and the service sector activity.
Daily digest market movers: Investors await US NFP data for October and November
- The Indian Rupee remains on the back foot against the US Dollar, even as the latter underperforms broadly ahead of the US Nonfarm Payrolls (NFP) combined report for October and November, which will be published at 13:30 GMT.
- At the press time, the US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, trades tightly close to the eight-week low of 98.13 posted on Thursday.
- Investors will closely monitor the US employment data as it will influence market expectations for the Federal Reserve’s (Fed) monetary policy outlook. The Fed has reduced its interest rates by 75 basis points (bps) this year, and comments from members have signaled that the major driver behind rate cuts was weak labor market conditions.
- On Monday, New York Fed Bank President John Williams said at an event hosted by the New Jersey Bankers Association that the “monetary policy is very focused on balancing jobs," adding that the labor market “is clearly cooling”.
- According to expectations, the US Unemployment Rate remained steady at 4.4% in November. Signs of further weakness in employment conditions would prompt Fed dovish expectations, while indication of an improvement might weigh on the same.
- According to the CME FedWatch tool, there is a 67% chance that the Fed will cut interest rates at least two times by the end of 2026.
Technical Analysis: USD/INR holds above 91.00
USD/INR trades around 91.25 in the opening session on Tuesday, the highest level seen ever. Upward-sloping 20-day Exponential Moving Average (EMA) at 90.0726 supports the bullish bias, with pullbacks expected to hold on first tests of the average.
The 14-day Relative Strength Index (RSI) at 73.89 is overbought, demonstrating strong momentum with signals pointing stretched conditions that could temper immediate upside.
The upward-sloping average should act as first support on dips, while a daily close below it would signal a deeper correction toward the round-level figure of 90.00. Looking up, a sustained strength above the current level would extend the advance toward 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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