- The Indian Rupee drifts lower in Thursday’s Asian session.
- Higher oil prices and persistent outflows weigh on the INR, but weaker USD and RBI’s intervention might cap its downside.
- Investors await the US December Retail Sales and weekly Initial Jobless Claims releases on Thursday for fresh impetuses.
The Indian Rupee (INR) trades in negative territory on Thursday. A surge in crude oil prices exerts some selling pressure on the local currency as India relies on overseas suppliers for almost 90% of its oil consumption. Furthermore, continued outflows from foreign investors and concerns about India’s economic slowdown contribute to the INR’s downside.
However, the cooler-than-expected US inflation data raises the bet that the US Federal Reserve (Fed) could cut interest rates twice this year. This, in turn, could weigh on the US Dollar (USD) and support the INR. The routine intervention from the Reserve Bank of India (RBI) also helps limit the local currency’s losses. The Indian central bank has regularly intervened to prop up the currency, burning through almost $70bn of its foreign exchange reserves since they reached a record high of $705bn in September 2024. Investors brace for the US Retail Sales for December and weekly Initial Jobless Claims, which are due later on Thursday.
Indian Rupee remains vulnerable amid a rise in crude oil prices and foreign fund outflows
- India’s economy is expected to become the fourth largest in the world by 2026, surpassing Japan, according to the PHDCCI on Wednesday. It projected the nation’s GDP to grow 6.8% in the current financial year ending March and 7.7% in FY26.
- India’s trade deficit narrowed to $21.94 billion in December from $37.84 billion in November, led by a sharp decline in gold and oil import bills, data released by the Ministry of Commerce and Industry showed on Wednesday.
- The US Consumer Price Index (CPI) climbed 2.9% YoY in December, compared to 2.7% in November, according to the Bureau of Labor Statistics on Thursday. This reading came in line with market expectations.
- The US core CPI, which excludes volatile food and energy prices, rose 3.2% YoY in December, below the previous reading and the market consensus of 3.3%.
- According to the Fed’s Beige Book survey released on Wednesday, economic activity increased “slightly to moderately” across the US in late November and December, supported by strong holiday sales.
USD/INR paints a positive picture, overbought RSI warrants caution for bulls in the near term
The Indian Rupee weakens on the day. The bullish outlook of the USD/INR pair prevails as the price has formed higher highs and higher lows while holding above the key 100-day Exponential Moving Average (EMA) on the daily chart. Nonetheless, further consolidation cannot be ruled out in the near term as the 14-day Relative Strength Index (RSI) moves beyond the 70.00 mark. This suggests an overbought condition and warrants some caution for bulls.
The first upside barrier for USD/INR emerges at an all-time high of 86.69. Extended gains could see a rally to the 87.00 psychological level.
On the other hand, the initial downside target to watch is 86.12, the low of January 13. Any follow-through selling below this level could pave the way to 85.85, the low of January 10. The next contention level is seen at 85.65, the low of January 7.
Indian Rupee FAQs
The Indian Rupee (INR) is one of the most sensitive currencies to external factors. The price of Crude Oil (the country is highly dependent on imported Oil), the value of the US Dollar – most trade is conducted in USD – and the level of foreign investment, are all influential. Direct intervention by the Reserve Bank of India (RBI) in FX markets to keep the exchange rate stable, as well as the level of interest rates set by the RBI, are further major influencing factors on the Rupee.
The Reserve Bank of India (RBI) actively intervenes in forex markets to maintain a stable exchange rate, to help facilitate trade. In addition, the RBI tries to maintain the inflation rate at its 4% target by adjusting interest rates. Higher interest rates usually strengthen the Rupee. This is due to the role of the ‘carry trade’ in which investors borrow in countries with lower interest rates so as to place their money in countries’ offering relatively higher interest rates and profit from the difference.
Macroeconomic factors that influence the value of the Rupee include inflation, interest rates, the economic growth rate (GDP), the balance of trade, and inflows from foreign investment. A higher growth rate can lead to more overseas investment, pushing up demand for the Rupee. A less negative balance of trade will eventually lead to a stronger Rupee. Higher interest rates, especially real rates (interest rates less inflation) are also positive for the Rupee. A risk-on environment can lead to greater inflows of Foreign Direct and Indirect Investment (FDI and FII), which also benefit the Rupee.
Higher inflation, particularly, if it is comparatively higher than India’s peers, is generally negative for the currency as it reflects devaluation through oversupply. Inflation also increases the cost of exports, leading to more Rupees being sold to purchase foreign imports, which is Rupee-negative. At the same time, higher inflation usually leads to the Reserve Bank of India (RBI) raising interest rates and this can be positive for the Rupee, due to increased demand from international investors. The opposite effect is true of lower inflation.
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.
Editors’ Picks
USD/JPY off monthly lows, reverts toward 156.00
USD/JPY recovers toward 156.00 n Thursday’s Asian trading, bouncing off fresh monthly lows near 155.20. Despite the upswing, the pair stays heavy as the Japanese Yen finds support from the prsopects of a BoJ interest rate hike next week while the Fed ponders over future rate cuts following the US December CPI report.
Best Forex Brokers with Low Spreads
VERIFIED Low spreads are crucial for reducing trading costs. Explore top Forex brokers offering competitive spreads and high leverage. Compare options for EUR/USD, GBP/USD, USD/JPY, and Gold.
