USDINR Stays Up As Dollar Demand Outstrips RBI Interventions

Summary:
• The momentum on USDINR favours the dollar as the rupee faces rising pressure from rising outflows despite RBI interventions.

USDINR inched up on Wednesday, trading at 87.20 after gaining 0.05% at the time of writing. The Indian rupee is under pressure on increased import demand for the dollar and high foreign institutional outflows from equities markets. Meanwhile, the US dollar is holding up but its upside is limited by concerns over the trajectory of the US economy.

Data published on Tuesday shows that the Reserve Bank of India sold net $36 billion in the second half of 2024, which helped the rupee avoid a deeper slide. However, the interventionist policy is likely to feel increasing strain as pressure mounts from foreign institutional outflows. The latest data shows that foreign investors have net-sold $15 billion year-to-date, and the trend will likely continue in the foreseeable future.

India’s February Consumer Price Index (CPI) data will be out on Wednesday and could provide clues on the RBI’s monetary policy posturing for the second quarter of the year. Meanwhile, crude oil prices are showing signs of a recovery after dropping to six-month lows earlier in the week. The extended decline in the commodity’s price has helped limit the USDINR upside.

However, Russia’s Deputy Prime Minister Alexander Novak said on Friday that the OPEC+ cartel could reverse an earlier decision to increase output in April due to market imbalances. Oil prices could rise in the coming weeks if the oil producers proceed with that move, adding pressure on the rupee.

USDINR Prediction

USDINR pivots at 87.10 and the momentum signals that the upside is likely to prevail above that level. The currency pair will likely meet the first resistance at 87.24. However, an extended control by the buyers will break above that level and potentially test 87.36

On the other hand, the momentum is likely to shift to the downside if the price breaks below 87.10. That is likely to see the first support come at 87.00. The upside narrative will be invalid if the price breaks below that level. The resulting momentum could extend the decline to test the second support level at 86.88.