USD/INR forecast: Indian rupee sell-off faces one final hurdle

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on Aug 4, 2023
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  • The USD/INR price has remained below 83 since October last year.
  • The rally continued after the US dollar index (DXY) rally continued.
  • Focus shifts to the upcoming American non-farm payrolls data.

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The USD/INR exchange rate is sitting at an important resistance level. The pair was trading at 82.74 on Friday, a few points below the crucial resistance level at 83, where it has failed to move above in the past few months.

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US dollar index strength

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The USD to INR exchange rate has held quite well this week, helped by the supercharging US dollar index (DXY). The DXY index has surged to over $102.8, a strong recovery after it dropped to $99.8 in July.

It continued rising this week as investors embraced a risk-on sentiment after Fitch decided to downgrade America’s triple A rating. As I wrote here, the company said that the US was facing a tough period as its debt surged. As a result, American stocks tumbled this week, with the Nasdaq 100 and Dow Jones falling for three straight days.

The USD/INR pair also rose after the Federal Reserve hiked interest rates by another 0.25% last week. It moved rates to between 5.25% and 5.50%, the highest level in more than 22 years. 

The Fed said that it will maintain its data dependence when making its next interest rate decisions. Therefore, analysts will focus on the upcoming American non-farm payrolls (NFP) data scheduled on Friday.

Economists expect the data to show that the economy added 200k jobs in July after adding over 218k jobs in the previous month. They also expect the numbers to reveal that the unemployment rate remained at 3.6% while the average hourly earnings dropped to 4.2%.

Strong American jobs numbers will be positive for the USD/INR exchange rate since it will mean that the Fed will deliver another hike. On the other hand, the Reserve Bank of India (RBI) is expected to maintain its rates steady this year.

USD/INR technical analysis

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USD/INR

The daily chart shows that the USDINR pair has been in tight range since October last year. In this period, the pair has failed to move above the key resistance level at 83. As a result, the firm moved above the ascending trendline shown in blue.

The pair has moved above the 25-day and 50-day exponential moving averages while the Relative Strength Index (RSI) has drifted upwards. Therefore, the USD/INR pair will remain in this range in the next few weeks. A strong bullish breakout will be confirmed if the pair moves above the key resistance point at 83.01.

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