Summary
The Indian Rupee is poised for an upward trajectory, projected to open marginally higher against the , fueled by an Asian currency rally and expectations of a Federal Reserve pivot. Despite a modest 0.1% increase in recent weeks, the rupee’s resilience is underscored by steady foreign investments in Indian markets. Fitch Ratings’ optimistic forecast for India’s robust GDP growth further contributes to the positive sentiment. Technical analysis hints at potential fluctuations in the pair, presenting both challenges and opportunities in the currency market.
Highlights
Rupee’s Expected Opening: The rupee is anticipated to open marginally higher on Friday, influenced by an uptick in Asian peers and speculations of a Federal Reserve pivot as early as the next quarter.
Non-Deliverable Forwards (NDFs): NDFs suggest that the rupee will open around 83.12-83.14 to the U.S. dollar, a slight increase from the previous session’s closing at 83.1650.
Asian Currency Trends: The offshore Chinese yuan reached its highest level since June against the dollar, and other Asian currencies rose by 0.2% to 0.5%.
Expectations of Fed Rate Cuts: Asian currencies have been supported by expectations of the Federal Reserve cutting rates several times in the coming year due to slowing inflation.
Performance of Other Asian Currencies: The Korean won and the Thai baht have seen a 5% increase since November, while the offshore yuan has climbed more than 3%.
Rupee’s Limited Movement: Unlike other Asian currencies, the rupee has only appreciated by about 0.1% in the same period, partly due to the central bank maintaining a narrow trading range.
Foreign Investment in India: Overseas investors have made substantial investments in Indian bonds and equities, totaling $9.3 billion in December, marking the highest monthly inflow for the year.
Fitch Ratings Forecast: Fitch Ratings predicts India to be the world’s fastest-growing country, with a resilient GDP growth of 6.5% during fiscal 2024–25.
US Economic Indicators: US Initial Jobless Claims for the week ending December 23 rose to 218,000, above the market consensus. Continuing Claims reached 1.875 million, the highest in four weeks. Pending Home Sales in November remained flat, falling below market expectations.
Technical Analysis of USD/INR Pair: The USD/INR pair is trading stronger on the day within a multi-month-old trading band between 82.80 and 83.40. The 14-day RSI has dipped below the 50.0 midpoint, indicating a potential for further decline. The pair is holding above the key 100-period Exponential Moving Average (EMA) on the daily chart.
USD/INR Support and Resistance Levels: A break below the key support level at 83.00 could lead to a drop to 82.80, followed by a low of August 11 at 82.60. On the upside, resistance is seen at 83.40 and the year-to-date high of 83.47, with a potential move towards the psychological mark of 84.00.
Conclusion
With the rupee navigating a narrow trading range and global economic indicators influencing its trajectory, the currency market is set for dynamic shifts. Foreign investments, Fitch Ratings’ endorsement, and the technical nuances of the USD/INR pair collectively paint a nuanced picture. Market participants should stay vigilant, considering the interconnected nature of global currencies and the evolving economic landscape, to make informed decisions in this dynamic and promising environment.
