USD/INR comeback faces hurdles but path to 80 likely

The USD/INR price moved sideways on Tuesday as investors reflected on the latest Fed and Reserve Bank of India (RBI) interest rate decisions. The pair was also wavering following last week’s positive US jobs data and the upcoming inflation numbers. It was trading at 79.58, which was  significantly higher than last week’s low of 78.

US inflation data ahead

The USD/INR forex price has been in a recovery phase as investor focu on the diverging policy between the Federal Reserve and the Reserve Bank of India (RBI). 

Are you looking for fast-news, hot-tips and market analysis?

Sign-up for the Invezz newsletter, today.

Last month, the RBI decided to hike interest rates by 0.50% in a bid to fight the soaring inflation. It was the second rate hike that the bank has implemented this year. Now, analysts believe that the bank will be a bit reluctant to hike interest rates later this year.

Meanwhile, the Federal Reserve decided to hike interest rates by 0.75% in July, bringing the total year-to-date increase to 225 basis points. In recent statements, Fed officials like Mary Daly and James Bullard have insisted that more hikes were necessary in the coming months.

Non-farm payrolls data published on Friday provided further evidence that the bank will continue hiking interest rates. The economy added over 528k jobs in July while the unemployment rate dropped slightly to 3.5%. 

The next key catalyst for the USD to INR exchange rate will be the upcoming US inflation data scheduled for Wednesday. Economists expect the data to show that the country’s inflation declined slightly from 9.1% to 8.7%. This view is backed by the fact that gasoline prices declined from the year-to-date high of $5 per gallon to about $4.3 in July. 

The USD/INR price will also react to the latest Indian trade and industrial and manufacturing production numbers scheduled for Friday.

USD/INR forecast

The four-hour chart shows that the USD to rupee downward trend ended last week when it dropped to the support at 78.14. Since then, it has bounced back and managed to move above the 25-day and 50-day moving averages while the MACD has moved above the neutral point. The MAs have even made a bullish crossover pattern.

Therefore, the pair will likely keep rising as bulls target the next important level at 80. A drop below the support level at 79 will invalidate the bullish view.