USD/INR Price Forecast: Remains sideways near 89.00 from a week

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The USD/INR pair ended Wednesday with a 0.2% correction to near 88.83. The pair faced selling pressure on Wednesday after the Reserve Bank of India’s (RBI) monetary policy announcement. On Thursday, Indian currency markets are closed due to Dusshera and Mahatma Gandhi Jayanti.

USD/INR has been trading in a limited range for over a week.
Indian markets are closed on Thursday.
The RBI kept its Repo Rate steady at 5.5% on Wednesday.

The RBI held its Repo Rate steady at 5.5%, as expected, and maintained a “neutral guidance” on the monetary policy outlook. The Indian central bank stated that officials decided to hold interest rates in the wake of steady domestic growth, subdued inflation, and heightened global risks, Newsonair.gov.in reported.

In the monetary policy announcement, the RBI raised the Gross Domestic Product (GDP) growth projection for the current financial year to 6.8% from the prior forecast of 6.5%.

The RBI warned that trade tensions with the United States (US) have raised uncertainty in the export market, but expressed confidence that its impact on economic growth will be offset by announced Goods and Services Tax (GST) rate cuts.

Meanwhile, the US Dollar (USD) has remained under pressure due to the US government shutdown and increasing hopes of more interest rate cuts by the Federal Reserve (Fed) this year.

USD/INR has been trading sideways after posting a fresh all-time high near 89.10 last week. The near-term trend of the pair remains bullish as the 20-day Exponential Moving Average (EMA) slopes higher around 88.50.

The 14-day Relative Strength Index (RSI) stays above 60.00, suggesting a strong bullish momentum.

Looking down, the pair could slide to near the September 12 high of 88.57 and the 20-day EMA, if it breaks below the September 25 low of 88.76.

On the upside, the pair could extend its rally towards the round figure of 90.00 if it breaks above the current all-time high of 89.12.

USD/INR daily chart

Indian Rupee FAQs

What are the key factors driving the Indian Rupee?

The Indian Rupee (INR) is one of the most sensitive currencies to external factors. The price of Crude Oil (the country is highly dependent on imported Oil), the value of the US Dollar – most trade is conducted in USD – and the level of foreign investment, are all influential. Direct intervention by the Reserve Bank of India (RBI) in FX markets to keep the exchange rate stable, as well as the level of interest rates set by the RBI, are further major influencing factors on the Rupee.

How do the decisions of the Reserve Bank of India impact the Indian Rupee?

The Reserve Bank of India (RBI) actively intervenes in forex markets to maintain a stable exchange rate, to help facilitate trade. In addition, the RBI tries to maintain the inflation rate at its 4% target by adjusting interest rates. Higher interest rates usually strengthen the Rupee. This is due to the role of the ‘carry trade’ in which investors borrow in countries with lower interest rates so as to place their money in countries’ offering relatively higher interest rates and profit from the difference.

What macroeconomic factors influence the value of the Indian Rupee?

Macroeconomic factors that influence the value of the Rupee include inflation, interest rates, the economic growth rate (GDP), the balance of trade, and inflows from foreign investment. A higher growth rate can lead to more overseas investment, pushing up demand for the Rupee. A less negative balance of trade will eventually lead to a stronger Rupee. Higher interest rates, especially real rates (interest rates less inflation) are also positive for the Rupee. A risk-on environment can lead to greater inflows of Foreign Direct and Indirect Investment (FDI and FII), which also benefit the Rupee.

How does inflation impact the Indian Rupee?

Higher inflation, particularly, if it is comparatively higher than India’s peers, is generally negative for the currency as it reflects devaluation through oversupply. Inflation also increases the cost of exports, leading to more Rupees being sold to purchase foreign imports, which is Rupee-negative. At the same time, higher inflation usually leads to the Reserve Bank of India (RBI) raising interest rates and this can be positive for the Rupee, due to increased demand from international investors. The opposite effect is true of lower inflation.

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