The USD/INR exchange rate retreated for three consecutive days as the recent US dollar index (DXY) sell-off cooled. The pair retreated to 84.36 on Tuesday, lower than the year-to-date high of 84.45. Similarly, the DXY index fell from $107.07 to $106.20.
USD/INR sits near its all-time high
The Indian rupee has moved to a record low this year, continuing an uptrend that has been going on for decades.
This rally happened as investors focused on the actions of the Federal Reserve and the Reserve Bank of India. Most recently, the climb was because of Donald Trump’s election and the potential impact.
In the United States, the Federal Reserve has started to cut interest rates. It delivered the first jumbo cut in September and then slashed by 0.25% in the last meeting.
The Fed did that because inflation has started moving to its 2% target, while the labor market has remained on edge. The most recent data showed that the US created just 12,000 jobs in October, missing the estimated 100,000.
Meanwhile, in India, the central bank has maintained a fairly hawkish tone because of the elevated inflation.
Data released by the statistics agency on November 12 showed that the headline Consumer Price Index rose from 5.49% in September to 6.21% in October, higher than the median estimate of 5.81%. It was the highest reading since August 2023.
India’s inflation has been in a steady increase in the past few months, rising from the year-to-date low of 3.54%. Therefore, analysts believe that the RBI may decide to hold interest rates higher for longer.
In the last meeting, the committee decided to leave rates unchanged at 6.5% and changed the policy stance to neutral.
India’s inflation has been mostly because of food prices and the depreciating currency, which explains why the bank has continued to intervene in the forex market.
Analysts expect that the Indian economy may benefit from a new trade war between the United States and China. Such a move could push more companies with manufacturing operations in China to accelerate their move to India. However, some analysts, like Chris Wood, don’t believe that Trump’s election will help India.
USD to INR analysis
The weely chart shows that the USD/INR exchange rate has been in a fairly consolidation phase in the past few months. It was trading at 84.35 on Tuesday, a few points below its all-time high.
On the positive side, the pair has formed an ascending wedge pattern, which is characterized by converging trendlines. In most periods, a wedge is one of the most bearish signs in the market, especially when the two lines are nearing their convergence.
The Relative Strength Index (RSI) has also formed a bearish divergence chart pattern. Therefore, the contrarian view is that the USD/INR exchange rate will soon have a strong bearish breakdown in the coming days.
If this happens, the next point to watch will be the 100-week moving average at 82.51, which is about 2.2% below the current level.
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