The Indian rupee continues to fall. The domestic currency fell to a new low of 84.93 before closing at 84.90 against the dollar on Tuesday. On the other hand, the dollar index has been stable since the beginning of this week. This indicates that the market is waiting to see the outcome of the US Federal Reserve meeting outcome on Wednesday.
Fed watch
A 25-basis points (bps) rate cut has been largely factored in the market. According to the CME Group’s FedWatch Tool there is a 97 per cent probability for a 25-bps rate cut in this meeting.
The economic projections will be more important to watch in this meeting. The Fed in its previous projection released in September, had a forecast for a 100-bps rate cut in 2025.
It is important to see if the Fed is retaining this projection or making any revisions to it. Any change in the rate cut path going into 2025 may cause some wild swings in the market.
Dollar bullish
The dollar index (106.95) has risen back well after testing its 105.50. The outlook is bullish. The index can rise to 108 in the near-term. Failure to breach 108 can take the index down to 107-106 again. In that case, the index can oscillate in a range of 105.50-108 for some time.
The bias will remain positive. So, we can expect the dollar index to breach 108 and rise to 110-111 in the coming months.
Near-term support
The Indian rupee has a key support at 85. This is likely to hold on its first test at least. So, we can expect the rupee to get a breather in the coming days. A recovery to 84.70-84.65 in the coming weeks.
However, a rise beyond 84.65 is unlikely and the rupee is likely to remain below it. Eventually it can break 85 and fall to 85.30 and much lower going forward gradually.
