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USD/INR: Time For Some Rupee Strength?

USD/INR: Time For Some Rupee Strength?

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The USD/INR trading pair finished the week with a softer tone after the US dollar succumbed to profit-taking on improving risk appetite.

The Indian rupee firmed to a one-week high of 79.50 on Friday, helped by a rally in Equity markets and a surprising increase in US oil inventories. A combination of dollar weakness and rupee strength pushed the pair below the 50-Day moving Average (DMA) for the fourth time in the last six months. However, a late-day recovery saw USD/INR close above the short-term momentum gauge. Furthermore, the rate is currently changing hands above the 50-DMA early Monday.

US equity markets reversed a three-week losing streak, with the S&P500 finishing the week higher by 3.65%. The improving sentiment led the dollar lower against its major trading pairs. As a result, the US Dollar Index retreated from a twenty-year high of 110.78 to 108.97. Subsequently, USD/INR posted a second-consecutive weekly decline.

Crude oil fell sharply following the API crude inventory data on Wednesday. US crude stockpiles were expected to fall from the previous week. Instead, inventories beat analyst forecasts by almost 4 million barrels, showing a 3.8 million barrel surplus. Following the report, West Texas Intermediate (WTI) crude slumped 5.6%, the largest daily decline in two months. However, despite the jump in crude stocks, WTI surged almost 4% on Friday, paring the weekly loss to 0.09%. The rupee weakened as oil ticked higher, climbing above the 50-DMA in the process. Nonetheless, the Indian currency finished the week in positive territory against the greenback.

Whether the rupee can extend on those gains depends on today’s Indian Consumer Price Index (CPI) data. Imported inflation has been the main factor in India’s widening trade deficit this year, contributing to the rupee’s weakness. With that in mind, if the CPI comes in below the forecast 6.9% annualized rate, USD/INR may succumb to further selling.

US Dollar to Indian Rupee Forecast

USD/INR is attempting to reverse its seven-month uptrend. The pair is currently propped up by the 50-DMA at 79.58 (green), which aligns with a rising trend line to provide confluent support.

A daily close below the DMA and the rising trend should encourage rupee buying. In this event, an extension towards the 0.236 Fibonacci retracement at 78.82 and the 100-DMA at 78.61 (blue) looks likely.

However, the CPI could spoil the party for the rupee later today. Should the inflation data come in above expectations, USD/INR may reverse recent losses. Here, the psychological 80.00 and record high of 80.20 provide significant resistance on the upside.

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USD/INR Price Chart

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.