- The Indian Rupee slips to a record low during Thursday’s Asian session, attracting sellers.
- Sustained USD demand and a cautious tone from Fed officials are likely to keep the INR under pressure.
- Key US data releases, including Initial Jobless Claims, Existing Home Sales, and the final Q3 GDP reading, are scheduled for later on Thursday.
The Indian Rupee (INR) edged closer to a fresh record low on Thursday, weighed down by renewed US Dollar (USD) demand from importers and foreign banks. The Federal Reserve’s decision to lower its key interest rate by 25 basis points at its December meeting, coupled with projections of a slower pace of rate cuts in 2025, further strengthened the USD against the INR.
Indian equity markets followed Wall Street’s overnight decline after the Fed signaled a cautious outlook for rate cuts next year. The Nifty 50 and BSE Sensex indices opened lower at 23,880 and 79,029, respectively, marking their fourth consecutive session of losses. Weakness in banking, financial services, metals, and tech sectors contributed to the downturn.
Despite the pressure, the INR’s downside could be capped as the Reserve Bank of India (RBI) is expected to intervene to curb excessive volatility. Market participants now await key US data releases, including Initial Jobless Claims, Existing Home Sales, and the final Q3 GDP reading, scheduled for later on Thursday.
Indian Rupee Remains Under Pressure Following Fed’s Hawkish Rate Cut
- Traders remain cautious ahead of Friday’s decision on key lending rates by China’s central bank, as China is India’s largest trading partner. Market sentiment is further influenced by uncertainty over potential policy changes and tariff adjustments from the incoming US administration.
- A spike in gold imports widened India’s trade deficit to a record high in November, pushing the INR to a historic low. However, Bloomberg News reported on Wednesday that this was due to a calculation error, citing sources familiar with the matter.
- “Dollar demand from foreign clients is pressuring the rupee. Still, the rupee is faring better than other currencies, with its depreciation being gradual. It is expected to trade within a narrow range, and the 85 per dollar level is likely to hold,” said the treasury head at a state-owned bank.
- On Wednesday, the Federal Reserve lowered the Federal Funds Rate by 25 basis points to a range of 4.25%-4.50%, returning to December 2022 levels.
- According to the Fed’s Summary of Economic Projections (dot plot), policymakers now anticipate two rate cuts in 2025, down from four projected in September.
- The dot plot also revised the expected unemployment rate for this year down to 4.2% and raised the 2024 GDP growth projection to 2.5%.
USD/INR Maintains Constructive Broader Trend
The Indian Rupee continues to trade weaker, while the USD/INR pair sustains its strong uptrend on the daily chart, holding firmly above the 100-day Exponential Moving Average (EMA). With the 14-day Relative Strength Index (RSI) hovering above the midline at 65.85, bullish momentum remains intact, favoring further upside.
The ascending trend channel, along with the psychological resistance at 85.00, presents a significant hurdle for bulls. A breakout above this level could trigger a rally toward the next target at 85.50.
On the downside, initial support is located at 84.82, near the lower boundary of the trend channel. A decisive break below this level could expose 84.22, the November 25 low. Further bearish movement may lead to a drop toward 84.16, aligning with the 100-day EMA.
