As of this writing the USD/INR exchange rate is 90.3455 This is the first drop overall, with selling momentum from FIIs starting to ebb. While the currency pair has eroded, the underlying outlook remains bullish. Positive economic indicators and strong market fundamentals are propelling this trend. With the Indian Rupee holding strong despite external headwinds, analysts are watching the developing dynamics that may signal the currency’s next move.
The 20-day Exponential Moving Average (EMA) of 89.6159 confirms the bullish movement. The pair continues to trade above this important EMA, which keeps a bullish bias for USD/INR. According to analysts, first support is at the 20 day EMA, just below 89.6159. That’s a very good sign — it shows there is a solid groundwork laid for future dividends to security improvements.
Potential for Upside Movement
Market observers expect that if USD/INR breaks the record high of 90.70 or so, it will quickly race to the 92.00 level. Such a movement would suggest a notable bullish reversal trend on the market. The 14-day Relative Strength Index (RSI) is at 67.76, which suggests strong momentum. It has come down from the breadth overbought zone suggesting a reversion in where the market is shifting. This is an indication that though the bullish sentiment is still bullishness, it is not overcooked.
The growth boom in India has impressed overseas investors to no end, intensifying the demand for the Rupee. Beyond trade and investment, factors like higher real-interest rates—interest rates adjusted for inflation—are proving favorable for the Indian currency. The lackluster performance of the US Dollar Index (DXY), crossing below 99.00 USD index adds to the conducive environment for USD/INR.
The country’s economic landscape is unlike anything we’ve ever seen. In India, a widening fiscal deficit is putting upward pressure on demand for US Dollars in the non-deliverable forward (NDF) market. At the same time, economic growth slackened in recent months, and the labor market seems to be dialing back on its own accord.
“Economic growth has slowed, and the labor market gradually cooled,” – New York Fed Bank President John Williams
Market Dynamics and Investor Sentiment
Indeed, recent data indicates that foreign investors have withdrawn significantly from Indian markets. They have cut back on their investments during the first four trading days of this month to the tune of Rs. 2,491.18 crore on average. This troubling trend threatens the rule, predictability and reliability these foreign investments depend upon. This hasn’t really affected the strength of the Rupee till now.
Providing more competitiveness. Inflation continues to be an essential factor affecting the value of currencies. Example Paragraph If India’s inflation rate were to increase more rapidly than those of its counterparts, the Rupee would be threatened. Fears of future devaluation might stem from overall excess supply in the economy. A poll earlier this week by Reuters, taken from December 4-8, forecasted that India’s retail inflation will increase at a 0.7 percent annualized clip. This is a historic rise from October’s rate of just 0.25%.
Market analysts believe there will be a significant revaluation of the currency’s value in the near term. They know that all these recent developments may provide them an opening to make change.
“There is room for a further adjustment in the near term.” – New York Fed Bank President John Williams
Looking Ahead
The world economic landscape is changing before our very eyes. Traders and investors need to remain abreast of the elements that can influence the USD/INR currency pair. Domestic economic conditions and international market trends are more integrated than ever. Combined, they will measurably determine how real and how valuable the Rupee will be in the future.
Other challenges, including inflation and a global economy that has suddenly downshifted, are sure to pose challenges. Nonetheless, the bullish bias on USD/INR would persist as long as it holds above important support. Investors will continue to monitor upcoming economic data releases and central bank decisions closely to gauge future movements in this critical exchange rate.