- The Indian Rupee weakens in the Asian session on Thursday.
- Weakening Chinese Yuan, firmer USD and subdued expectations after Malhotra’s appointment weigh on INR.
- Indian CPI inflation and US PPI data will be the highlights on Thursday.
The Indian Rupee (INR) loses ground on Thursday after hitting a record low in the previous session. A sharp fall in the Chinese Yuan and the rise of the United States Dollar (USD) by importers and foreign banks could drag the local currency down. Additionally, the appointment of career bureaucrat Sanjay Malhotra as the next Reserve Bank of India (RBI) governor led traders to raise their expectations for interest rate cuts, which could put some selling pressure on the INR.
However, the decline in the Indian Rupee could be limited as the RBI could intervene to limit further depreciation. The Indian central bank often intervenes by selling USD to prevent strong INR weakness.
Traders will be keeping an eye on the US November Producer Price Index (PPI) and weekly initial jobless claims, which will be released later on Thursday. On the Indian agenda, CPI inflation, industrial production and manufacturing production data will be released on Thursday.
Indian Rupee remains weak amid multiple challenges
- India’s GDP growth is estimated to rise to 7% in FY2026, driven by a restart of the capital investment cycle, tailwinds from deferred fiscal spending in FY2025, a reduction in reserve ratio of (CRR) and possible further macroprudential easing, which could help revive credit growth, according to Axis Bank.
- Economists at Capital Economics anticipate a 25 basis point cut in India’s repo rate at Malhotra’s first MPC meeting in February, if not at an earlier unscheduled meeting. Economists estimated the cut would come in April under Das’ leadership.
- US Consumer Price Index (CPI) inflation rose to 2.7% year-on-year in November from 2.6% in October, the US Bureau of Labor Statistics showed on Wednesday. This reading was in line with the market consensus.
- Core CPI, excluding volatile food and energy prices, rose 3.3% year-on-year in November, compared with 3.3% during the same period. On a monthly basis, the headline CPI rose 0.3% mom, while the core CPI rose 0.3% mom in November.
- Fed funds futures are pricing in a roughly 95% chance that the U.S. central bank will cut rates at the December meeting, according to CME’s FedWatch tool.
USD/INR maintains long-term bullish trend
The Indian Rupee weakens on the day. The USD/INR pair paints a positive picture on the daily chart as the pair is well supported above the 100-day EMA. However, the 14-day Relative Strength Index (RSI) is above the midline near 67.70, suggesting that the support level is more likely to hold than break.
The potential resistance level emerges at 85.00, representing the uptrend channel and psychological level. Extended gains above this level could see a rally to 85.50.
On the other hand, the lower boundary of the trend channel at 84.70 acts as an initial support level for USD/INR. Sustained trading below the mentioned level could pave the way towards 84.22, the November 25 low, followed by 84.10, the 100-day EMA.
Indian Rupee FAQs
The Indian Rupee (INR) is one of the currencies most sensitive to external factors. The price of crude oil (the country relies heavily on imported oil), the value of the US Dollar (most trade is done in US dollars), and the level of foreign investment are all influential factors. The direct intervention of the Reserve Bank of India (RBI) in the foreign exchange markets to keep the exchange rate stable as well as the level of interest rates set by the RBI are other important factors influencing the Rupee. .
The Reserve Bank of India (RBI) actively intervenes in foreign exchange markets to maintain a stable exchange rate and help facilitate trade. Additionally, the RBI tries to keep the inflation rate at its target of 4% by adjusting interest rates. Higher interest rates tend to strengthen the Rupee. This is due to the role of the “carry trade”, in which investors borrow in countries with lower interest rates to park their money in countries that offer relatively higher interest rates and profit from the difference.
Macroeconomic factors that influence the value of the Rupee include inflation, interest rates, economic growth rate (GDP), trade balance and foreign investment inflows. A higher growth rate can lead to more investment abroad, increasing demand for the Rupee. A less negative trade balance will eventually lead to a stronger Rupee. Higher interest rates, especially real rates (interest rates minus inflation) are also positive for the Rupee. A risk environment can lead to higher inflows of foreign direct and indirect investment (FDI and FII), which also benefit the Rupee.
Higher inflation, particularly if it is comparatively higher than other countries, is generally negative for the currency as it reflects a devaluation through excess supply. Inflation also increases the cost of exports, leading to more rupees being sold to buy foreign imports, which is negative for the Indian Rupee. At the same time, higher inflation usually leads the Reserve Bank of India (RBI) to raise interest rates and this can be positive for the Rupee, due to increased demand from international investors. The opposite effect applies to lower inflation.
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
