USD/INR: Rupee sells-off as analysts slash India growth forecast

By: Crispus Nyaga
Crispus Nyaga
Crispus is an active trader, where he is followed and copied at Capital.com. He lives in Nairobi with his wife, son,… read more.
on Apr 20, 2021
  • The USD/INR pair rallied as the number of coronavirus cases continued to rise.
  • The Reserve Bank of India (RBI) will be under pressure to curb inflation.
  • Analysts at Nomura, JP Morgan, and UBS have downgraded India growth forecast.

The USD/INR price rose as worries about the state of the Indian economy continued. The pair rose to 75.00, which was 1% above yesterday’s low of 74.33. Other pairs like the EUR/INR and GBP/INR also rose after retreating yesterday.

Indian rupee
Indian rupee chart

India Covid concerns

The Indian rupee has retreated recently as the number of coronavirus cases has continued to surge recently. The number of daily Covid cases has surged to more than 259,167, the highest level on record. Data compiled by Google shows that the 7-day moving average of infections has surged to more than 233k. 

Are you looking for fast-news, hot-tips and market analysis? Sign-up for the Invezz newsletter, today.

This trend will likely continue for two main reasons. First, while the government is ramping up the vaccination, the size of the country means that it will take months or even a year to complete the vaccination drive. Second, business and religious activities are going on in most cities. This will lead to a further spread of the disease that has killed more than 181,000 people so far.

The impact of the rising Covid cases to the Indian economy will be dire. Indeed, many banks and forex and spread brokers have started to downgrade the economic recovery. In a note, analysts at Nomura downgraded this year’s growth forecast to 12.6% from 13.5%. JP Morgan has also downgraded the forecast to 11% while UBS expects it to grow by 10%.

A weaker Indian economy at a time when the United States has started to fire on all cylinders is a negative factor for the USD/INR. That’s because it will take more time for the Indian Central Bank to hike interest rates even as inflation rebounds. Indeed, in the recent central bank decision, the bank pivoted to quantitative easing by launching a plan to buy government bonds worth more than $14 billion.

USD/INR technical forecast

USD/INR
USD/INR technical chart

The USD/INR price has been in a strong upward trend in the past few weeks. It has jumped by more than 4% from the lowest level on March 22. The price has moved above the 38.2% Fibonacci retracement level on the four-hour chart. It is also being supported by the 25-day and 15-day exponential moving averages while the two lines of the Stochastic Oscillator are moving close to the overbought level. Therefore, the pair will likely keep rising as bulls target the year-to-date high of 75.50.

Invest in crypto, stocks, ETFs & more in minutes with our preferred broker, eToro
10/10
67% of retail CFD accounts lose money