- The Indian rupee remains subdued due to risk aversion in the face of Trump’s tariff threat.
- Asian currencies are struggling as the overseas Chinese yuan falls following comments by a senior trade adviser to US President-elect Trump.
- Indian benchmark indices opened lower on Friday, mirroring the overnight decline on Wall Street.
The Indian rupee (INR) extends losses for a second straight session, hovering near recent record lows on Friday. The positive side of the USD/INR pair can be attributed to a stronger US dollar (USD) amid Trump’s tariff threats.
Asian currencies are under pressure amid a weaker overseas Chinese yuan (CNH), led by comments from a senior trade adviser to US President-elect Donald Trump. According to a Reuters report, the adviser warned China against currency manipulation.
The INR may also face challenges with the appointment of bureaucrat Sanjay Malhotra as the next RBI governor, prompting investors to enhance their bets on interest rate cuts. Moreover, retail inflation in India declined to 5.48% in November, from a 14-month high of 6.21% in October, helped by a slowdown in food prices that raised expectations of an interest rate cut by the RBI in its February policy review.
The decline in the Indian rupee may be constrained by the Reserve Bank of India’s (RBI) foreign exchange intervention. India’s central bank frequently intervenes to manage liquidity, including selling USD, to prevent a acute depreciation of the INR.
The Indian rupee remains delicate amid foreign fund outflows
- Indian benchmark indices BSE Sensex and Nifty 50 started withering on Friday, mirroring overnight declines on Wall Street. Investors in India are expected to remain cautious ahead of next week’s Federal Open Market Committee (FOMC) meeting of the Federal Reserve (Fed).
- On December 12, foreign institutional investors (FIIs) recorded net selling of Indian equities worth ₹ 3,560.01 crore, while domestic institutional investors (DIIs) made net purchases of ₹ 2,646.65 crore.
- Financial markets are already fully pricing in the Federal Reserve’s 25 basis point interest rate cut on December 18, according to CME’s FedWatch Tool.
- On Thursday, the US producer price index (PPI) rose 0.4% m/m in November, the biggest gain since June, following an upwardly revised 0.3% rise in October. This reading was better than the expected 0.2%.
- The U.S. Consumer Price Index (CPI) rose to 2.7% year-over-year in November from 2.6% in October. The main CPI recorded a m/m reading of 0.3%, in line with the market consensus. Meanwhile, core CPI, excluding volatile food and energy prices, increased by 3.3% y/y as expected, while core CPI increased by 0.3% m/m in November.
- S&P Global Ratings on Tuesday estimated the Indian economy to grow at 6.8% in fiscal 2025, followed by 6.9% growth in fiscal 2026, on the back of mighty urban consumption, continued growth in the services sector and continued investment in infrastructure.
Technical analysis: USD/INR sets recent highs near 85.00
The Indian rupee remains delicate near its all-time lows against the US dollar on Friday. On Friday, USD/INR is trading around 84.80 and the technical analysis of the daily chart indicates a strengthening bullish sentiment. The pair is moving higher within a rising channel formation, with the 14-day relative strength index (RSI) trading just below the 70 level.
The USD/INR pair may attempt to break its all-time high of 84.88 recorded on December 12. A break above this level could allow the pair to test the upper boundary of the ascending channel, located near 85.10.
Initial support can be found at the nine-day exponential moving average (EMA) at 84.73, which coincides with the lower boundary of the ascending channel near the psychological level of 84.70.
