HomeNewsUSD/INR Forecast: Rupee Retreat Stalls at Rs 80.00
USD/INR Forecast: Rupee Retreat Stalls at Rs 80.00

USD/INR Forecast: Rupee Retreat Stalls at Rs 80.00

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The Indian Rupee inched higher vs. the US Dollar on Monday as bullish USD/INR trades were unwound ahead of tomorrow’s FOMC interest rate decision.

The US Dollar has strengthened steadily against the Rupee all year. Earlier in July the Rupee reached a record low against the greenback when the USD/INR rate traded above Rs 80.00 for the first time ever.

A weaker currency is squeezing margins for the nation, which receives around 6% of its imports from the United States. As such, India has turned to cheap Russian crude oil to satisfy its energy requirements.

Of course, India is not the only nation suffering the effects of the stronger U.S Dollar. The Japanese Yen is trading close to a 24-year low against its US counterpart, and the Dollar just recently broke Euro parity. Nonetheless, the Reserve Bank of India (RBI) has deemed the drop in the Rupee severe enough to take action.

Central Bank Steps-In

The RBI has taken several measures to prop-up the Rupee in recent weeks, including actively selling US Dollars. Outside of direct intervention, the central bank has also emphasized its strong Dollar reserves and urged exporters to create demand by invoicing in Rupee’s. So far, the measures appear to be working, and the USD/INR rate has stabilized at just below the psychological Rs 80.00 level. However, the currency’s near-term fate lies in the hands of tomorrow’s interest rate decision in the U.S.

FOMC in Focus

A slew of negative US economic data has called the Dollar rally into question. Earlier in the month, many analysts were urging the FOMC to deliver a 100 basis point interest-rate hike at the upcoming meeting. However, the latest Flash U.S Composite PMI release showed some areas of the U.S economy are contracting, raising fears that the world’s largest economy could soon enter a crippling recession. Subsequently, the market now expects the fed to announce a 75bp hike on Wednesday. Because of this uncertainty, Dollar bulls have been unwinding positions as the meeting draws near, undoubtedly providing a ceiling for the USD/INR pair.

US Dollar to Rupee Outlook

The weekly price chart highlights the parabolic rise of the Dollar against the rupee. Notably, the all-time-high of Rs 80.21 aligns with two previous ATHs to create a robust trend line above the market. Technical traders typically view trend lines as areas of support and resistance. Thus, it’s logical to expect some Rupee buying from the technical community.

Whilst Technical Analysis plays a part in price discovery — monetary policy will dictate where the Rupee heads next. A 75 bp hike from the Fed is priced-in to the USD/INR rate. On that basis, a 100 bp hike should encourage Dollar strength, pushing the Rupee lower. Whereas a less-likely 50bp hike will favor the Indian Rupee.

USD/INR Price Chart (Weekly)

Elliot Laybourne
Elliott is a former investment banker with a 20 year career in the city of London. During this time he held senior roles at ABN Amro, Societe Generale, Marex Financial and Natixis bank, specialising in commodity derivatives and options market-making. During this time, Elliott’s client list included Goldman Sachs, JP Morgan, Credit Suisse, Schroders Asset Management, and the Pennsylvania State Public School Employees Retirement System, amongst others. Today, he splits his time between Thailand and Dubai, from where he provides trading consultancy and business development services for family office and brokerage clientele.