USD/INR: Here’s why the rupee is surging as India’s Covid cases rise
- The Indian rupee has gained against the US dollar in the past few weeks.
- This performance is partly because the government has not announced a major lockdown.
- There is also a possibility that the RBI will not ease further.
The USD/INR price is hovering near its lowest level in more than a month even as the number of coronavirus cases and deaths continues to rise. The pair is trading at 73.32, which is 3% below its highest point in April.
India Covid crisis continues
India has become in the spotlight recently as the new variant of coronavirus keeps rising. The country has recorded more than 23 million cases and more than 258,000 deaths. Indeed, the number of deaths has continued to rise by more than 4,000 every day. Analysts, including the respected Bhramar Mukherjee, believe that the actual number is 4 times higher.
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Therefore, analysts believe that the Indian economy will take a longer time to recover. Indeed, this week, Moody’s slashed this year’s growth estimate to 9.3%. This came a few days after S&P Global cut the forecast to 9.8% from the previous 11%. Analysts at banks like Goldman Sachs and Morgan Stanley have also warned of the country’s recovery.
Meanwhile, the USD/INR pair has dropped even as the US dollar has strengthened. Other emerging market currencies like the South African rand and Mexican peso have declined against the dollar. This price action is probably because the Indian government has avoided large-scale lockdowns. In a note last week, analysts at TD Securities said:
“Lack of widespread lockdowns suggest prices are unlikely to pick up significantly. As such, we don’t expect the RBI to react by tightening monetary policy at a time of pressure on economic activity. We continue to suggest receiving rates.”
The Indian rupee has also gained because of the large inflows of humanitarian aid and the fact that analysts don’t see further easing by the RBI.
Later today, the USD/INR pair will react to the latest retail sales numbers from the United States. Analysts expect that the volume of sales moderated in April after surging in March following the stimulus package.
USD/INR technical forecast
The USD/INR has been in a downward trend in the past few weeks. This has seen it drop below the 61.8% Fibonacci retracement level. The pair has also fallen below the short and longer-term moving averages. It is also slightly below the upper line of the descending channel. It has also moved below the bearish flag pattern. Therefore, the pair may keep falling as bears target the 78.6% Fibonacci retracement level at 72.95.