The Indian Rupee (INR) has defied expectations by exhibiting strength against the US Dollar (USD) in recent days. This resilience comes despite a generally stronger USD on the global market. Let’s delve deeper into the factors contributing to the INR’s rebound and the outlook for the currency pair.
Rallying Against the Tide:
Several key factors are believed to be behind the INR’s impressive recovery:
- Reserve Bank of India (RBI) Intervention: The market widely suspects the RBI of intervening to curb the sharp depreciation of the INR witnessed earlier. This intervention, aimed at maintaining exchange rate stability, could explain the INR’s sudden reversal of fortunes.
- Robust Indian Economy: In contrast to a slowing global economic landscape, India’s economy is projecting strength. This positive outlook is fueled by:
- Narrowing Current Account Deficit: India’s current account deficit, a measure of a country’s net foreign trade, has narrowed. This indicates a more sustainable external balance for the Indian economy.
- Positive Growth Forecasts: S&P Global recently revised India’s GDP growth forecast for FY25 upwards to 6.8%. This indicates continued economic expansion, further bolstering the INR’s appeal.
- Potential Rate Cuts by RBI: The expectation of rate cuts by the RBI later in 2024 could also be contributing to the INR’s relative strength. Lower interest rates can make domestic assets less attractive to foreign investors, potentially leading to a weaker USD/INR.
- Renewed Foreign Investor Interest: A return of foreign investor confidence seems to be underway. After a period of net outflows, foreign investors are reportedly turning net buyers of Indian assets again. This renewed interest injects fresh capital into the Indian economy and strengthens the demand for INR.
Technical Analysis: A Mixed Picture
The technical analysis of USD/INR presents a somewhat conflicting outlook:
- Short-Term: Technical indicators on the daily chart, such as the 100-day EMA remaining above the price and the 14-day RSI hovering above 50, suggest a potential short-term upside for the USD/INR pair. Key resistance levels to watch include 83.49 (all-time high) and the psychological level of 84.00.
- Long-Term: The long-term outlook remains tilted in favor of the USD. The recent breakout of USD/INR above a multi-month descending trendline on the chart suggests a potential for further appreciation in the USD/INR pair over a longer time horizon.
Looking Ahead: A Balancing Act
The future trajectory of the INR will likely depend on a complex interplay of various factors. The RBI’s interventionist stance, the health of the Indian economy relative to the global slowdown, and the direction of foreign capital flows will all be crucial determinants. While the INR’s recent performance is encouraging, long-term dominance against the USD might be challenging to sustain.