USD/INR remains stable ahead of US PMI release

The Indian rupee attracts some sellers during Friday’s early European session.
Continued USD strength and concerns over an economic slowdown in India continue to weaken the INR.
The December ISM US Manufacturing PMI will be closely monitored.

The Indian rupee (INR) continued its decline on Friday after closing at an all-time low for the eighth consecutive session. The local currency remains under pressure as sturdy US dollar (USD) demand in the non-deliverable futures (NDF) market has expanded arbitrage with the Indian onshore market. Additionally, India’s discouraging growth rate, larger trade deficit and slowdown in capital inflows are contributing to the INR decline.

However, the Reserve Bank of India (RBI) may intervene to sell the dollar and offer short-term relief to the INR. Traders are waiting for December’s U.S. ISM Manufacturing Purchasing Managers Index (PMI) to bring fresh momentum, due for release on Friday. Federal Reserve Bank of Richmond President Thomas Barkin is also scheduled to speak later in the day.

The Indian rupee continues to depreciate despite the intervention of the RBI

According to a report by Bank of Baroda, the rupee is likely to experience a slight depreciation in 2025, led by volatile foreign portfolio investment (FPI) flows and a potentially stronger US dollar.
Traders noticed that state-owned banks were selling dollars worth between $800 million and $1 billion.
HSBC’s India manufacturing PMI hit its lowest level since 2024 in December, falling to 56.4 from 57.4 in November. This number was weaker than expected (57.8).
“India’s manufacturing activities ended a strong 2024 on a low note amid more signs of slowdown, albeit moderate, in the industrial sector. The pace of growth in new orders was the slowest of the year, suggesting weaker growth in future production.” said Ines Lam, economist at HSBC.
Initial claims for unemployment benefits in the U.S. for the week ending December 28 fell to 211,000, according to Thursday’s release from the U.S. Department of Labor (DOL). compared to 220 thousand printed in the previous week (corrected from 219 thousand). This reading was below the market consensus of 222,000.

USD/INR maintains sturdy tone, overbought RSI warrants caution for bulls

The Indian rupee rate is negative on this day. According to the daily chart, the sturdy uptrend of USD/INR remains unchanged as the pair broke above the uptrend channel last week. The path of least resistance is higher as the pair holds above the key 100-day exponential moving average (EMA).

However, the 14-day Relative Strength Index (RSI) reading above 70 suggests an overbought condition and signals that further consolidation cannot be ruled out before positioning for any near-term USD/INR appreciation.

In the case of a rally, the first growth barrier appears at the all-time high level of 85.81. Maintaining a trade above the mentioned level could pave the way towards the psychological level of 86.00.

On the other hand, the initial support level for USD/INR is at the resistance-turned-support level at 85.54. Breaking this level may result in a drop to the round value of 85.00. The next competitive level to watch is the 100-day EMA at 84.40.