In the early hours of Thursday’s European session, the Indian Rupee is showing signs of weakness. The push from importers to secure US Dollars and the lack of robust foreign investment are weighing heavily on the INR. It doesn’t help that India’s December Manufacturing PMI has hit its lowest point in 2024, adding to the pressure. Investors are also on edge, awaiting the release of the US weekly Initial Jobless Claims data.
This dip in the Indian Rupee is largely due to a rise in demand for the USD by importers, coupled with higher yields on the US 10-year Treasury, and growing worries about India’s slowing economic growth. In December, India’s manufacturing sector saw its weakest expansion of 2024, as the Manufacturing Purchasing Managers’ Index (PMI) slid down to 56.4 from a previous 57.4. This was a disappointment, particularly since expectations were set at 57.8. The INR has yet to show any substantial recovery following the release of this disheartening PMI data. Despite all of this, the Reserve Bank of India (RBI) might step in to manage currency fluctuations, potentially providing some stability. Investors are also keeping an eye out for significant updates, like the US weekly Initial Jobless Claims and the S&P Global Manufacturing PMI for December, which are slated to come out later today.
The Indian Rupee is indeed fragile amid a flurry of USD bids from importers and local economic challenges. Anil Kumar Bhansali, Head of Treasury at Finrex Treasury Advisors LLP, noted that “the rupee is still susceptible to downward pressure, given strong dollar bids and robust US yields.” According to a Reuters report, factors like the resilient US Dollar hovering near 108.48, coupled with ongoing concerns about India’s slowing domestic growth and expanding trade deficit, are influencing the negative sentiment surrounding the INR. As of the period between April and November of FY25, India’s fiscal deficit reached 8.47 trillion rupees ($98.90 billion), accounting for 52.5% of the financial year’s estimate, a rise from the 50.7% recorded in the previous year. The Reserve Bank of India estimates real GDP growth at 6.6% for 2024-25 and 6.9% for the first quarter of 2025-26. Across the Atlantic, the US Housing Price Index gained 0.4% month-on-month in October, down from 0.7%, and falling short of the expected 0.5%. Meanwhile, according to the US S&P/Case-Shiller Home Price Indices, home prices rose by 4.2% year-over-year in October, a slight drop from the 4.6% previously recorded but better than the expected 4.1%.
Even with the Relative Strength Index (RSI) in an overbought condition, the USD/INR remains on an upward trajectory. Currently, the Indian Rupee is trailing for the day. On a technical front, the USD/INR recently advanced past an ascending trend channel, sustaining its positive outlook as the price remains above the essential 100-day Exponential Moving Average (EMA) on the daily chart. The RSI’s reading over 70 hints at an overbought state, suggesting a potential consolidation phase before any further appreciation of the USD/INR can occur. The all-time high mark of 85.81 is the immediate resistance level for USD/INR, and if the bulls succeed in crossing this threshold, the psychological level of 86.00 might become the next target in the short term. Conversely, should the pair retreat, the initial downside target is pegged at the resistance-turned-support level of 85.50. A decisive breach there could pave the way for sellers to aim for the 85.00 round figure, with an eye on the 100-day EMA at 84.37.
