Indian Rupee: What’s Fuelling It’s Four-Month Dollar Dominance?

The Indian rupee managed to make its biggest weekly gain since December 8, 2023. The currency advanced against the US dollar for the sixth consecutive session of probable foreign gain.  

Rupee was at 82.8380 against the US dollar, the highest close since September 22, 2023, from 83.0750 last week.

According to some traders, the reason for the recent strengthening of the rupee was the sale of dollars by a major British bank. They said it was probably an external business loan.

Additionally, the US dollar (USD) was under downward pressure, trading as low as 102.20 amid a weak producer price index (PPI) in December, but later recovering to 102.40. The greenback has fallen more than 4% in the past two months, which has also weighed on sentiment.

Fed bullish stance, based on satisfaction with cooling inflation and no rates forecast for 2024, has weakened the US dollar recently and appears to balance the resilience of the US economy as other economic blocs weaken. Despite the higher CPI reading, the market remains bullish and expects the central bank to start the easing cycle sooner rather than later, and soft PPI readings have given the market reason to bet on a less aggressive approach.

Apart from this, the Indian Rupee gained strength on the back of strong economic data and continued intervention by the RBI. India’s GDP grew by 7.3% in FY2023-24, beating market expectations, underscoring the resilience of the Indian economy to the RBI’s tightening cycle last year.

The country’s strong economy is consistent with continued rising demand for Indian stocks and the stringency of sovereign debt, which supported massive foreign inflows into rupee-denominated financial assets as the Sensex hit an all-time high.

Additionally, investors felt comfortable with the supply of the rupee thanks to RBI’s support. The central bank has repeatedly intervened in currency markets to prevent the rupee from falling beyond the record low of 83.4, which has been tested since the third quarter of 2023. high, in line with RBI’s hawkish signals.

Technical Outlook -Indian Rupee:

Since November 2023, the USD/INR pair has turned negative and retreated from the high of 83.4700. And made a low of 82.7840 last week. The pair lost 0.29% for the week, compared to last week’s high of 83.0750.

A low three-candle pattern was observed on the above chart, indicating further weakness. Beyond that, the pair faced huge resistance at 83.4550 and broke the long-term consolidation support at 82.9550. Additionally, the pair is trading below the 20 SMA.

All the above technical aspects give a bearish outlook for USD/INR. And a break below 82.7550 will soon extend the loss to 82.5560-82.2025. On the upside, immediate resistance is seen above 83.1025, it may consolidate between 83.2550-83.4550.00. Alternatively, huge resistance is seen at 83.5025 and a break above which only the pair can try at 83.7525-84.1025

Commodity Samachar
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