USD/INR forecast: here are the top Indian rupee levels to watch

The Indian rupee continued consolidating this week as the country’s election continued and after the encouraging US inflation report. The USD/INR exchange rate was trading at 83.43 on Thursday where it has been in the past few days. This price is about 0.30% below its highest point this year.

Federal Reserve and RBI next cuts

The USD/INR has been in the spotlight this week because of the key events in the United States. Jerome Powell, the Fed Chair, spoke on Tuesday and reiterated that the bank will be patient when determining the schedule for the next rate cut. He also noted that the bank will maintain its data dependence this year. 

The pair also reacted mildly to Wednesday’s data dump. Data revealed that the headline and core inflation figures dropped to 0.3% on a MoM basis and to 3.4% and 3.6%, respectively. It was the first monthly decline in six months.

These numbers mean that inflation is still significantly above the Fed target of 2.0%. Most importantly, they confirmed the view that the US in a period of stagflation, which is characterised by high inflation and slow economic growth.

A report showed that the country’s retail sales softened in April, which is worrying because consumer spending is the biggest part of the American economy. The manufacturing activity has also decelerated. 

Therefore, the base case is that the Fed will deliver about two interest rate cuts later this year. This will happen if inflation continues dropping, which explains why the US dollar index tumbled this week.

Meanwhile, there is a possibility that the Reserve Bank of India (RBI) will slow interest rate cuts even as inflation moderates. The most recent data showed that India’s inflation slowed from 4.85% in March to 4.83%. This slowdown was softer than the median estimate of 4.80%.

Economists expect that the RBi will cut rates either in the third or fourth quarter. Other emerging market central banks like those in Brazil and Chile have already started cutting rates soon. The RBI may decide to cut after the Fed. 

USD/INR technical analysis

USD/INR chart by TradingView

The daily chart shows that the USD to INR exchange rate has moved sideways in the past few days. It was trading at 83.45, where it has been for a while. This price is notable since it was its highest swing on November 23rd.

The pair has jumped above the 50-day Exponential Moving Average (EMA) and the ascending trendline that connects the lowest swing in 2023 and 2024. Therefore, the pair’s outlook is neutral with the key support and resistance levels to watch will be at 83.24 and 83.72.

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