USD/INR attracts some buyers ahead of New Year holiday

• The Indian Rupee trades in negative territory in Tuesday's Asian session. 
• The weakening of Chinese Yuan, spike in USD bids, and slower pace of Fed rate cuts drag the INR lower. 
• India's November Federal Fiscal Deficit and Q3 Trade Deficit will be the highlights on Tuesday ahead of New Year holiday. 

The Indian Rupee (INR) extends its downside on Tuesday after falling to its weakest closing level in the previous session. The local currency remains under selling pressure amid a decline in the offshore Chinese Yuan and broad-based US Dollar demand. Furthermore, the rising expectation of higher-for-longer US Federal Reserve (Fed) policy rates, tepid capital inflows, and tariff threats under incoming US President Donald Trump contribute to the INR's downside. 

However, the Reserve Bank of India's (RBI) intervention in NDF (non-deliverable forward) markets could prevent the INR from sharp depreciation. It's likely to be a quiet trading session in a holiday-shortened and thin-trading-volume week. Traders brace for India's Federal Fiscal Deficit for November and the Indian Trade Deficit for the third quarter (Q3), which are due later on Tuesday. 

Indian Rupee remains vulnerable amid multiple headwinds

• India's Current Account Deficit (CAD) is expected to remain at 1.1% of the Gross Domestic Product (GDP) in the financial year 2024-25 (FY25), according to a report by ICICI Bank.
• "The dollar-rupee pair is expected to remain in a range of 85.30-85.60 with dips to be bought," said Anil Bhansali, head of treasury at Finrex Treasury Advisors.
• Foreign portfolio investors have sold over $10 billion of local stocks and bonds over this quarter on a net basis, according to stock depository data.
• The US Pending Home Sales increased by 2.2% MoM in November versus 1.8% (revised from 2.0%) prior, according to the National Association of Realtors (NAR) on Monday. This reading came in better than the estimation of 0.7%. 
• The Chicago Purchasing Managers' Index declined to 36.9 in December from 40.2 in the previous reading, weaker than the 42.5 expected. 

USD/INR maintains bullish bias in the longer term

The Indian Rupee weakens on the day. Technically, the strong uptrend of the USD/INR pair remains in play as the pair is well supported above the key 100-day Exponential Moving Average (EMA) on the daily timeframe. 

However, the 14-day Relative Strength Index (RSI) is located near 76.10, indicating an overbought condition. This suggests that further consolidation cannot be ruled out before positioning for any near-term USD/INR appreciation. 

The first upside barrier for the pair emerges at the all-time high of 85.81. If bulls manage to break decisively above the mentioned level, this could draw in potential buyers to the 86.00 psychological level. 

On the bearish side, the resistance-turned-support level of 85.45 acts as a first downside target for USD/INR. Sustained trading below this level could expose 85.00, the round mark. The key contention level is seen at 84.32, the 100-day EMA.