- The Indian rupee fell in early European trading on Monday.
- The strong US dollar is weighing on the Indian rupee, but periodic intervention by the central bank could limit the rupee's downside.
- Investors are awaiting the release of the December US Consumer Confidence Index later on Monday.
The Indian rupee (INR) remained weak near record lows on Monday, weighed down by declines in the offshore Chinese yuan and end-of-month importing US dollar (USD) bids. Persistent dollar strength, driven by the US Federal Reserve's hawkish leanings, has weakened emerging market currencies, such as local currencies.
Meanwhile, the Reserve Bank of India (RBI) may enter the foreign exchange market by selling the US dollar. This may help limit INR losses in the near term. Looking ahead, the December US Consumer Confidence Index and Chicago Fed National Activity Index are expected to be released later on Monday. Durable goods orders will be announced on Tuesday.
Indian Rupee Looks Vulnerable Amid Fed Hawkish Expectations
- India's foreign exchange reserves have declined in nine of the past 10 weeks, hitting their lowest level in months. Foreign exchange reserves have continued to decline since reaching a record high of USD 704.89 billion in September, with foreign exchange rates standing at USD 654.857 billion last week, according to RBI data. .
- “With the widening trade deficit and slowing growth, the rupee is being challenged by outflows from domestic equity markets.For USD/INR, position-wise, 84.70 currently serves as a good benchmark. , the door to the 85.50 level remains open,” said Kunal Sodhani, vice president of financial institutions. Shinhan Bank India.
- The Commerce Department said Friday that the U.S. personal consumption expenditures (PCE) price index rose 2.4% year over year in November, after rising 2.3% in October. The result was weaker than the expected 2.5%.
- U.S. core PCE, which excludes volatile food and energy components, rose 2.8% year over year in November after rising by the same percentage in October, but below expectations of 2.9%.
USD/INR maintains long-term bullish outlook
The Indian rupee depreciated on this day. The USD/INR pair remains above the important 100-day Exponential Moving Average (EMA) on the daily time frame, conserving its strong uptrend. The path of least resistance is to the upside as a pair, with the 14-day Relative Strength Index (RSI) above the midline near 65.40.
A bullish candlestick that could push USD/INR higher could head into the ascending channel at 85.20. If the rally widens, it could rise to 85.50.
Conversely, the lower bound of the channel at 84.88 serves as the initial support level for the pair. A breakout of this level could pave the way for the 100-day EMA at 84.19.
RBI FAQ
The Reserve Bank of India's (RBI) role is, in its own words, “to maintain price stability with the objective of growth in mind.” This involves keeping inflation at a stable 4% level, primarily using the tool of interest rates. Maintain the Indian economy at a level that does not cause undue volatility or problems for exporters and importers. Foreign trade, especially oil.
The RBI holds formal bi-monthly meetings six times a year to discuss monetary policy and adjust interest rates as necessary. If inflation is too high (above the 4% target), the RBI typically raises interest rates to rein in borrowing and spending, which could support the rupee (INR). If inflation falls well below target, the RBI may cut interest rates to encourage lending expansion, which could be negative for INR.
Due to the importance of trade to the economy, the Reserve Bank of India (RBI) actively intervenes in the foreign exchange market to maintain exchange rates within a limited range. This is to ensure that Indian importers and exporters are not exposed to unnecessary currency risks during periods of currency fluctuations. The RBI buys and sells rupees at key levels in the spot market and uses derivatives to hedge its positions.
