USD/INR forms an ascending triangle as focus shifts to Fed, RBI

The Indian rupee has been stuck in a range in the past four months as traders focused on the actions by the Federal Reserve and the Reserve Bank of India (RBI). The USD/INR exchange rate remained unchanged at 83.20, where it has been stuck at since September. It remains about 2.82% from its January low and by over 15% from its 2021 lows.

RBI and Fed decisions

The USD to INR price remained in a consolidation phase even as the US dollar index (DXY) retreated to a multi-month low. This performance happened as traders assessed the actions of the Fed and the RBI.

In the US, the Fed hiked rates to a two-decade high in 2023. Most recently in its December meeting, the bank signaled that it will deliver three rate cuts in 2024. It was the first time that the officials pointed to rate cuts.

Still, the Fed will maintain its data-dependence when determining when to cut rates. The most recent data showed that the Personal Consumption Expenditure (PCE) continued falling in November.

There are also signs that the American economy is slowing. The closely watched Atlanta Fed Now tool estimates that the economy expanded by 2.6% in the fourth quarter, a sharp decline from Q3’s growth of 5.3%.

Meanwhile, in India, the RBI has maintained rates at 6.5% as inflation remained slightly above its 4% comfort level. It dropped to a four-month low of 4.87% in October, forcing the RBI to maintain a hawkish tone.

Economists believe that the RBI will start cutting interest rates in the third quarter of 2024. In contrast, most of them see the Fed starting to cut as soon as in March of next year.

India’s economy is expected to remain quite vibrant in 2024. Economists at the RBI expect it to grow by 7% in 2024 from the previous 6.5%. In the US, estimates are that the economy will grow by just 1.5% during the year.

USD/INR technical analysis

The USD/INR exchange rate has been in a consolidation phase in the past few months. On the daily chart, the pair has consolidated at the 50-day and 25-day Exponential Moving Averages (EMA). It has also formed what looks like an ascending triangle pattern while the Average True Range (ATR) has been flat.

Therefore, at this point, the outlook for the pair is neutral for now. A bullish breakout will be confirmed if the price moves above the resistance at 83.43, the upper side of the ascending triangle pattern.