USD/INR forecast as the Indian rupee stages a strong comeback

The USD/INR exchange rate has pulled back in the past few weeks as the actions by the Reserve Bank of India (RBI) continued. The pair has dropped to 92.85, down by 2.45% from its highest point this year. So, what next for the Indian rupee as bond yields jump?

Indian rupee jumps as bond yields soar

The Indian rupee has done well in the past few weeks as the Reserve Bank of India (RBI) ramped up its fight against speculators, especially in the banking industry, where it is pushing them to unwind their dollar positions ahead of the April 10 deadline. 

Analysts expect that banks will lose millions of dollars in value in the coming quarters. That's because the central bank has urged banks to cap their net open positions at $100 million. Also, it barred banks from offering non-deliverable forwards.

These actions aim at curbing the recent Indian rupee weakness as it plunged to a record low of 95.15 against the US dollar. At its peak, the USD/INR pair was up by nearly 11% from its lowest level last year.

Indian government bond yields are soaring 

The USD/INR pair has pulled back in line with the ongoing surge in Indian bond yields. Data compiled by TradingView shows that the ten-year yield has jumped to 7.115%, its highest point since May 2024.

Similarly, the five-year yield has jumped to 6.8%, while the two-year yield rose to 6.4%, much higher than the year-to-date low of 5.657%.

The Indian bond yields have soared as crude oil and natural gas prices have continued soaring this year. Brent and the West Texas Intermediate (WTI) jumped above $112 this month, a trend that may continue if Trump continues with his plans to bomb bridges and power plants.

India is highly vulnerable to the ongoing war in Iran because it imports most of its crude oil from the region. While the US has allowed it to buy Russian oil, attacks on Russian infrastructure by Ukraine has had an impact on its exports. Recent data showed that its weekly exports dropped to 2.32 million a day, down by over 1.75 million barrels.

Therefore, these numbers mean that India’s inflation will continue rising this year and push the Reserve Bank of India to hike interest rates in the coming meetings. That will be a big turnaround after the bank delivered several interest rate cuts last year.

The USD/INR exchange rate will react to the upcoming US consumer inflation report on Friday this week. Economists expect the upcoming numbers to show that the headline Consumer Price Index rose to 3.4% in March.

USD/INR technical analysis 

USDINR chart | Source: TradingView 

The daily timeframe chart shows that the USD to INR exchange rate has pulled back in the past few weeks. It has dropped from a high of 95.24 in March this year to the current 92.80.

The pair is hovering slightly above the 23.6% Fibonacci Retracement level. It has also moved slightly below the Ichimoku cloud indicator.

However, the pair has remained above the 50-day and 100-day Exponential Moving Averages (EMA). It has also formed a small inverted hammer candlestick pattern, which often leads to a rebound.

Therefore, the pair will likely bounce back in the coming weeks as bulls target the key target the key resistance level at 94. A move above that level will point to more gains, potentially to the year-to-date high of 95.20.