USD/INR hits a major wall as Fed and RBI diverge

The USD/INR exchange rate drifted downwards after the mild divergence between the Federal Reserve and the Reserve Bank of India (RBI). The pair retreated to a low of 83.20, its lowest point since November 17th.

RBI and Federal Reserve divergence

The Federal Reserve and the RBI diverged in their final monetary policy decisions of the year. In its meeting last week, the RBI left rates unchanged at 6.5% and warned that it was not close to cutting. 

The committee noted that inflation, especially food prices, remained stubbornly high. Some economists believe that the bank will maintain rates at the current level and then start cutting in the second quarter of 2024.

The Federal Reserve also left rates unchanged between 5.25% and 5.50% as was widely expected. The key change in its statement was that the bank would consider delivering at least three rate cuts in 2024.

Therefore, analysts see the Fed delivering more rate cuts than that if inflation continues falling. There are signs that this downtrend will continue as the price of gasoline continues falling. 

Data by AAA shows that the average gasoline price was trading at $3.10 on Thursday, down from $3.35 a month ago. This trend could continue since the price of crude oil has slumped hard in the past few months. Brent was trading at $76.80 while the West Texas Intermediate (WTI) stood at $76.80.

Looking ahead, the USD/INR pair will be in autopilot for the rest of the year since the Fed and the RBI have already delivered their final decisions of the year and provided their guidance.

The key data to watch on Friday will be the latest flash manufacturing and services PMI numbers from the US. India, on the other hand, will release the latest trade numbers for November. 

USD/INR technical analysis

USDINR chart by TradingView

The USD to INR exchange rate has been stuck in a tight range in the past few weeks. In this period, the pair has remained below the important resistance level at 83.41, the highest point since August 18th. It remains above the ascending trendline that connects the lowest swings since January 23rd.

Therefore, the outlook for the USD/INR pair is neutral for now. More gains will be confirmed if the price moves above the resistance point at 83.41. A move above that price will point to more upside.