Indian Rupee Hits Record Low Amid Foreign Equity Outflows and US Dollar Strength
The Indian Rupee (INR) reached an all-time low on Monday as it continues to face pressure from sustained foreign equity outflows and expectations of a stronger US Dollar (USD). Investor sentiment has turned cautious following Donald Trump’s election win, with fears of higher US bond yields adding to the INR’s vulnerability.
Despite these headwinds, some factors might help limit the INR’s depreciation. India’s position as the world’s third-largest oil consumer benefits from recent declines in crude oil prices, which could ease some pressure on the INR. Additionally, the Reserve Bank of India (RBI) has intervened by selling USD to stabilize the currency, aiming to mitigate any excessive losses in the near term.
Key Economic Data to Watch: CPI and Inflation Reports
Traders are closely monitoring India’s October Consumer Price Index (CPI), scheduled for release on Tuesday. Analysts expect the CPI inflation rate to climb to 5.80% year-on-year (YoY) in October, up from 5.49% in September, adding a crucial indicator for the INR’s performance. In the United States, the CPI inflation report is also due this week, on Wednesday, potentially reinforcing USD strength if the report meets or exceeds expectations.
Meanwhile, foreign investors have pulled more than $1.5 billion from Indian equities in early November, following $11 billion in outflows in October, according to data from Societe Generale. The continuous outflows remain a primary driver of USD/INR upward momentum, suggesting that the INR may experience further downside until equity outflows subside.
US Market Sentiment Remains Positive Amid Strong Economic Data
The University of Michigan’s Consumer Sentiment Index, which rose to 73.0 in November from 70.5 in October, exceeded market expectations and marked the highest level in seven months. This improvement in consumer sentiment underscores the resilience of the US economy. Minneapolis Federal Reserve President Neel Kashkari commented that while inflation progress is evident, the Fed’s battle against inflation is ongoing, keeping USD demand robust.
USD/INR Technical Analysis: Bullish Outlook Maintained with Overbought RSI
The USD/INR currency pair remains bullish, holding above the critical 100-day Exponential Moving Average (EMA) on the daily chart. Currently, the 14-day Relative Strength Index (RSI) stands near an overbought level at 77.75, suggesting that further consolidation could occur before the next upward move.
A sustained increase in buying pressure may propel USD/INR to test the 84.50 resistance level, with the psychological level of 85.00 as the next key target. Conversely, if USD/INR drops below the 84.05-84.10 support zone, it may see a decline towards the 100-day EMA near 83.83, with additional support at 83.46, marking the September 24 low.
Conclusion
The Indian Rupee’s trajectory remains challenging due to foreign equity outflows and USD strength. Key CPI data from India and the US will be crucial in guiding short-term price action. Traders should monitor technical levels closely, as the USD/INR pair remains bullish but could see short-term consolidation.
