The USD/INR exchange rate rallied to an all-time high as the odds of earlier interest rate cuts in India rose. The pair was trading at 84.83 on Friday morning, up by almost 18% from its lowest level in 2021.
RBI interest rate cuts
The USD/INR pair continued rising after a recent report showed that the Indian economy was not doing well, a situation that could deteriorate.
According to the statistics agency, the economy expanded by 5.4% in the third quarter, lower than the expected 6.5%. It was also much lower than the 6.7% growth rate experienced in the second quarter. Also, it was the weakest growth since early 2023.
These numbers have had a major impact on the Indian economy. For one, the government replaced the head of the Reserve Bank of India (RBIA). Sanjay Malhotra, a career bureaucrat was named to replace Shaktikanta Das.
The government views Das as a highly hawkish central bank governor who has maintained high interest rates. Das hinted that the first interest rate cut would come at least in the first quarter of next year.
Therefore, Narendra Modi hopes that Malhotra will take charge and start cutting rates soon. India’s headline rates have remained at 6.5% in the last few months as the central bank remained concerned about the rising inflation rate.
The most recent data showed that the headline consumer price index (CPI) slowed to 5.48% from the previous 6.21%. It was a bigger drop than the median estimate of 5.53%.
India’s food inflation is still a big challenge, which explains why the RBI has maintained a fairly hawkish tone this year.
Read more: USD/INR forecast: Here’s why the Indian rupee has crashed
Trump tariffs and strong US dollar index
The other top concern among the Indian central bank is that the economy could be impacted by Donald Trump’s trade war. Trump has threatened to start his trade wars by implementing large tariffs on imports to the country. He has also threated countries in the BRICS group with tariffs. India is a founding member of the group.
These concerns have pushed the US dollar index higher against most emerging market currencies like the rupee. The US dollar index rose to $107.10, and is hovering near its highest level since November 2022.
Analysts expect that the Federal Reserve will continue to cut interest rates in the last meeting of the year. It has already delivered two rate cuts this year.
USD/INR forecast
The weekly chart shows that the USD/INR exchange rate rallied to a high of 84.85 this week.
It has remained above all moving averages, a sign that bulls are in control. At the same time, it has the momentum as the MACD and the Relative Strength Index (RSI) have continued rising. These are signs that the Indian rupee may continue falling in the longer term.
However, the USD to INR pair has also formed a rising wedge pattern, a popular bearish sign in the market. This pattern is made up of two ascending trendlines that converge.
Therefore, there are odds that the Indian rupee will bounce back in 2025. If this happens, the next point to watch will be at 80.
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