USD/INR Surges as Record Trade Deficit Pushes Indian Rupee to New All-Time Low

Indian Rupee Nears Record Low Amid Rising US Yields and Weak Chinese Yuan

The Indian Rupee (INR) weakened on Tuesday, edging closer to a fresh record low as global factors, including rising US Treasury bond yields and weakness in the Chinese Yuan, weighed on the local currency. Additionally, a widening merchandise trade deficit in India for November added further pressure on the INR.

However, significant depreciation in the Rupee is likely to be capped, as the Reserve Bank of India (RBI) is expected to step in and sell US dollars via state-owned banks to prevent excessive currency volatility.

Key Events to Watch: US Retail Sales and Federal Reserve Decision

Investors are closely watching the US Retail Sales data for November, set to be released later on Tuesday. The spotlight will shift to the US Federal Reserve’s (Fed) interest rate decision on Wednesday, followed by Fed Chair Jerome Powell’s press conference and the updated economic projections, which could provide fresh direction for global markets.

Indian Economic Indicators Remain Mixed

Domestically, India’s wholesale price index (WPI) inflation eased to a three-month low of 1.89% in November, down from 2.36% in October, according to the Ministry of Commerce and Industry. The data came in below market expectations of 2.2%, signaling softer inflation pressures.

On the positive side, the India Manufacturing PMI released by HSBC showed an improvement to 57.4 in December from 56.5 previously. The Indian Services PMI surged to 60.8 in December, up from 58.4, while the Composite PMI rose sharply to 60.7 from 58.6. HSBC economist Ines Lam attributed the gains in the manufacturing PMI to increases in current production, new orders, and employment.

US Economic Data Overview

Meanwhile, the US economy showed resilience with the S&P Global Composite PMI improving to 56.6 in December’s flash estimate, up from 54.9 previously. The US Services PMI also rose to 58.5, reflecting strong growth, although the Manufacturing PMI slipped to 48.3 from 49.7, indicating contraction in the manufacturing sector.

Outlook for the Indian Rupee

The Indian Rupee remains under pressure due to global cues, including strengthening US yields and Chinese Yuan weakness. However, the RBI’s potential intervention could limit further losses. Market participants will closely monitor the US Fed’s rate decision and policy outlook, which are likely to influence the next move for emerging market currencies, including the INR.