- Summary:
- The Reserve Bank of India is expected to intervene in the near-term as USDINR continues to strengthen amid rising domestic demand for the USD.
USDINR rose marginally on Tuesday, interrupting two successive days of decline. The pair is under pressure on speculation that the Reserve Bank of India (RBI) could prepare to intervene. The rupee dropped to record lows of 85.84 on Monday as high domestic demand for the dollar exerted pressure.
An official in India’s treasury stated recently that the government was closely monitoring the USDINR pair relative to the available import cover. Therefore, the RBI’s intervention will be linked closely to that reserve.
Going forward, the focus will be on Wednesday’s release of December Fed meeting minutes and Friday’s release of Non Farm Payrolls (NFP) data. Also, the RBI is likely to intervene in the near-term to prevent USDINR’s move to the psychological 86.00 level.
USDINR is also propelled by soft data from India’s services sector performance in December. The country’s S&P Global Services PMI reading printed out at 59.3, falling short of analysts’ median forecast of 60.8. Furthermore, that came on the heels of forecast-beating US S&P Manufacturing PMI released on Friday. The world’s largest economy reported a reading of 49.4 in December, exceeding the forecast figure of 48.3.
Meanwhile, incoming US President Donald Trump denied reports that his team was considering scaling back tariffs against certain imports from the likes of China and Mexico in favour of a blanket universal tariff for all imports. That raises the prospects of higher interest rates in the US in the coming months, adding support to the dollar.
USDINR Prediction
USDINR pivot is at 85.64 and the upside is likely to continue if action stays above that level. That will likely see the first resistance encountered at 85.72. However, a stronger momentum could breach that barrier and test the second resistance at 85.79.
Alternatively, moving below 85.64 will shift the momentum to the downside. With the sellers in control, initial support will likely come at 85.56. Breaking below that level will invalidate the upside narrative. Also, the resulting momentum could extend the downside and drive USDINR to the second support at 85.47.
