Indian Rupee corrects after hitting a fresh six-month high

• The Indian Rupee corrects after hitting a fresh six-month high against the US Dollar.
• The US Dollar outperforms its other peers as hopes of Fed’s bigger rate hike come into picture.
• FIIs continue to raise their stake in the Indian stock market.

The Indian Rupee (INR) corrects against the US Dollar (USD) on Thursday after posting a fresh six-month low. The USD/INR pair rebounds to near 94.00 from the day's low of 93.65 as the US Dollar extends its advance.

In the Asian trade, the US Dollar Index (DXY), which gauges the Greenback’s value against six major currencies, posts a fresh 18-month high at around 103.08.

What is fuelling US Dollar's rally?

The US Dollar strengthens as financial markets take the possibility of a bigger interest rate hike by the Federal Reserve (Fed) in the December policy meeting into consideration.

According to TD Securities, the “strong upside surprise in the Consumer Price Index (CPI) data makes a December hike all but certain,” with the bank reiterating that the data “certainly seals a Dec rate hike by the Fed.” Strategists note that “after Waller's speech on Tuesday, the debate has now shifted to whether the FOMC will go 25 or 50bps,” as Governor Waller’s pre-CPI remarks have sharpened the focus on the need for a potential “catch-up” move. TD Securities writes that the discussion will now centre on whether the Fed should implement a “catch-up 50bps rate hike in December, or whether to maintain course with a 25bps rate increase and provide strong guidance toward a potential January follow-through.” For now, they emphasize that “we still favor a 25bp hike with a rising risk of another hike in January.”

Why INR performed strongly in past few weeks?

Indian currency outperformed on the back of strong inflows of overseas investment into the Indian stock market. Foreign Institutional Investors (FIIs) continue to increase their investment in the Indian equity market as fresh headwinds in the global Artificial Intelligence (AI) stocks and falling energy prices have underpinned “India” as a competitive bet.

So far in November, FIIs have remained net buyers on all trading days, except Diwali Muhurat session, that fell on Sunday, November 08. Foreign investors have made a cumulative investment of Rs. 65,735.57 crore.

What are the fresh headwinds in global AI sector?

Concerns about the continuation of spending on AI infrastructure, following the victory of Democrats in the United States (US) midterm elections, pushed AI-related stocks into turmoil.

And now fears of replacement of Nvidia’s CEO Jensen Huang after reports from New York Times (NYT) of his extramarital affair with alleged Chinese spy Alice Huang and rumours of a relationship with his subordinate Kimberly Powell, Nvidia's vice president of health care, could put AI stocks under pressure.

The Wall Street Journal (WSJ) has reported that Nvidia's board was preparing to oust the CEO, adding that the next 48 hours as potentially volatile.

Lower oil prices – a tailwind for net energy importers

Falling oil prices due to hopes that the US and Iran would prefer a deal rather than renewing military attacks have improved the appeal of currencies from economies, such as India, which rely heavily on oil imports to meet their energy needs.

As of writing, the MCX Crude Oil contract expiring on November 19 is down 2.42%, slightly below Rs. 8,000.

USD/INR Technical Analysis

In the daily chart, USD/INR trades at 94.00, maintaining a bearish near-term tone as spot holds below the 20-period exponential moving average (EMA) at 94.61. The placement of price under this short-term EMA suggests rallies remain capped for now, while the Relative Strength Index (14) at 31.96 hovers just above oversold territory, hinting that downside momentum is still present but gradually stabilizing.

The pair has rebounded and testing the breakdown of the prior hurdle placed near 94.00

On the topside, initial resistance is defined by the 20-period EMA at 94.61, and a daily close above this barrier would ease immediate selling pressure. On the downside, the six-month low at 93.65 is the immediate support; a break below that level would expose the pair to 93.00.

(The technical analysis of this story was written with the help of an AI tool. Know more.)