The Indian Rupee is dropping for the fourth straight day against the US Dollar. The USD/INR exchange rate is around 91.45. This decline is mainly due to foreign investors pulling money out of India’s stock market amid ongoing trade tensions with the US. In November, India’s merchandise trade deficit shrank to $24.53 billion, down from $41.68 billion in October, which surprised many analysts. Additionally, goods exports increased by 19%, with merchandise transport to the US rising by 22.6%.

India’s Economic Context

In the broader economic picture, India’s HSBC Composite Purchasing Managers’ Index fell from 59.7 to 58.9 in November. This indicates a slower growth rate in business activities due to a slowdown in manufacturing and services. The US Dollar Index is hovering near its eight-week low as markets await the US Nonfarm Payrolls report. There is speculation about the Federal Reserve’s future actions, with a 67% chance of two interest rate cuts by the end of 2026. India’s strong economic growth, which relies heavily on foreign investments, has been affected by changing oil prices. Inflation influences the Indian Rupee and can lead to interest rate changes by the Reserve Bank of India. The Rupee’s drop to a near-record low of 91.45 against the Dollar is mainly due to significant and ongoing capital outflows. In November, foreign investors withdrew over Rs. 21,000 crore from Indian stocks, and data from early this month shows that this trend continues. This movement of funds is overshadowing positive news like the reducing trade deficit.

Technical Analysis and Market Strategies

From a technical perspective, the rise in USD/INR appears overextended, with the Relative Strength Index (RSI) above 73, indicating overbought conditions. While a pullback seems likely, the overall momentum remains strong. Any decline towards the 20-day moving average around 90.07 could present a buying opportunity rather than signal a trend reversal. The upcoming US Nonfarm Payrolls report is crucial, as the US labor market influences the Federal Reserve’s policies. The Dollar is generally weak against other currencies, making the Rupee’s weakness stand out. A significantly lower-than-expected jobs report could lead to a sharp drop in the Dollar, offering some temporary relief for the Rupee. For traders, this situation suggests strategies that could benefit from Rupee weakness, like purchasing USD/INR call options aimed at reaching the 92.00 level. However, given the overbought conditions and the upcoming US data, buying put options might be wise as a hedge or for short-term speculation on a pullback. The anticipated volatility around the data release makes options more attractive than holding futures positions. It’s also important to consider external factors affecting the Rupee, especially oil prices. With Brent crude recently trading near $88 a barrel, India’s import costs are rising, requiring more Rupees to buy Dollars. Additionally, India’s inflation climbed to 5.8% in the latest November reading, putting pressure on the Reserve Bank of India to possibly take action, complicating the overall outlook. Create your live VT Markets account and start trading now.

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