Indian rupee forecast: what next for the USD/INR exchange rate?

The Indian rupee moved sideways against the US dollar this week after the strong US inflation numbers. The USD/INR exchange rate rose to 83.35 on Friday, where it has been stuck at in the past few months.

Fed and RBI convergence?

There are signs that the Federal Reserve and the Reserve Bank of India (RBI) are moving to a convergence on interest rates as inflation remains sticky.

In a report this week, the Bureau of Labor Statistics (BLS) said that the US inflation stood at 3.5% in March. Core inflation, which excludes the volatile items, rose by 3.8% during the month.

The report came a few days after the US released strong jobs numbers. It added over 330k jobs in March as the unemployment rate dropped to 3.8%.

These numbers have removed the urgency of rate cuts as most analysts were expecting. As such, economists believe that the bank will hold rates steady in the coming months.

Some economists see the Fed hiking rates by another 0.25%. This is complicated by the fact that this is an election year. A rate hike or cut could lead to criticism that the Fed is interfering with the country’s politics.

The Reserve Bank of India has also stuck to a more hawkish tone recently. In its meeting last week, the bank decided to leave interest rates unchanged since inflation has remained above the 4% target rate. It was the seventh straight meeting of pausing. 

The RBI believes that inflation could continue rising in the coming months because of the ongoing heatwave in some countries that has pushed food prices higher. At the same time, the Indian economy is doing well, with annual growth rates of over 8%.

USD/INR technical analysis

USDINR chart by TradingView

In my last reports on the USD/INR pair, I wrote that the pair had found an important resistance at the 83.45 level for a few months. Its attempts to move above this level have turned into false breakouts. 

The USD to INR pair has remained above the 50-day Exponential Moving Average (EMA) while the Awesome Oscillator has moved above the neutral point. The Stochastic RSI indicator is pointing upwards.

Therefore, the outlook for the USD/INR pair is neutral for now. I suspect that it will remain in this range in the coming days as the Fed and the RBI maintain their hawkish stance. The support and resistance levels to watch will be at 82.50 and 84.