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Rupee Weakens Amid FII Outflows, High US Bond Yields, but RBI Intervention May Limit Losses

USDINR

October 29, 2024

New Delhi, India

USDINR Today

INR Performance and Influences

The Indian Rupee (INR) softened on Tuesday, facing downward pressure from:

  • Foreign Outflows: Significant withdrawals by foreign institutional investors (FIIs) from Indian equities and bonds, totaling $10 billion in October.
  • US Bond Yields: Higher yields fueled by investor bets on Donald Trump’s potential return to the US presidency.

Crude Oil and RBI Support

Despite the challenges, two factors may limit the rupee’s depreciation:

  • Crude Oil Prices: Recent declines in oil prices might ease the pressure on the INR.
  • RBI Intervention: The Reserve Bank of India (RBI) is likely to intervene by selling USD through public sector banks, aiming to stabilize the currency.

Economic Outlook and Key Data

The Indian economy is projected to grow between 6.5% and 7.0% in FY24, though Nomura warns of a potential “cyclical growth slowdown.” Traders are closely watching upcoming US economic indicators, including:

  • US Q3 GDP Annualized
  • PCE Price Index (September)
  • US Nonfarm Payrolls (NFP)

The CME FedWatch tool shows a 96.8% probability of a 25-basis-point Fed rate cut in November, with another anticipated in December.

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