USD/INR forecast: how low can the Indian rupee get?

The USD/INR exchange rate continued its bull run as investors waited for the upcoming Reserve Bank of India (RBI) interest rate decision. The Indian rupee was trading at 89.85 against the US dollar as it moved closer to the psychological point at 90. 

India and US trade deal is elusive as its economic growth continues

The USD/INR exchange rate has been in a strong bull run this year, moving from the year-to-date low of 83.76 to the current 88.90.

This rally makes the Indian rupee the worst-performing currency in the Asian region. It has accelerated as a trade deal between the United States and India has remained elusive. 

This makes India the only major country without a deal. As a result, the US is charging Indian goods a 50% tariff, a move that will affect the volume of goods shipped there. Analysts believe that a trade deal would help to boost the Indian rupee.

Still, recent macro data show that the Indian economy is doing well because of domestic consumption. Data released last week showed that the economy grew by 8.2% in the third quarter, higher than the median estimate of 7.4%. It was the sixth consecutive quarter that the economy has beaten estimates.

This growth was mostly driven by the manufacturing and services sector. Consumer spending was also strong during the quarter. As a result, analysts believe that the economy will grow to $4.19 trillion, making India the fourth-biggest economy in the world. 

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However, the Indian rupee has crashed because of the widening trade deficit and the fact that some importers are front-loading their dollar purchases as they expect more rupee weakness.

RBI interest rate decision ahead

The next important catalyst for the USD/INR exchange rate will be the upcoming Reserve Bank of India (RBI) interest rate decision. Economists believe that the plummeting Indian rupee will prevent the bank from cutting interest rates.

The RBI has maintained a relatively dovish tone this year as it slashed interest rates from the year-to-date high of 6.5% to 5.5%. These rate cuts have also contributed to the country’s economic growth. 

The RBI has slashed rates as India’s inflation has moved downwards, with the latest report showing that the headline Consumer Price Index (CPI) dropped to 0.25% in October. This decline is notable as the inflation stood at 6.21% in October last year.

A rate cut at a time when the Indian rupee is softening will make it worse for the currency. As such, some analysts believe that the bank may even hike rates to prevent the plunging.

USD/INR technical analysis

The daily chart shows that the USD to INR exchange rate has been in a strong bull run this year. It has soared from a low of 83.76 in May this year to the current 89.87.

The pair has moved above the important resistance level at 89.67, its highest point in November this year. It has also moved above the 50-day and 100-day Exponential Moving Averages (EMA).

The pair has remained above the Supertrend and Ichimoku cloud indicators. It is also approaching the upper side of the ascending channel.

Therefore, barring any major RBI intervention, there is a likelihood that the pair will rise to the upper side of the channel at 90.40. A drop below the support at 89.67 will invalidate the bullish outlook for now.