USD/INR forms ascending triangle amid Fed, RBI divergence

The USD/INR exchange rate is sitting near its all-time high as a divergence between the Reserve Bank of India (RBI) and the Federal Reserve widened. It was trading at 82.67 on Monday, slightly below its record high of 82.96. Similarly, the Nifty 50 and Sensex are both loitering near their all-time highs.

Fed and RBI divergence

The main reason for the strong USD/INR price action is the ongoing divergence between the Federal Reserve and the RBI. Data published last week, which we wrote about here, showed that inflation is still a major concern in the US.

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The headline consumer price index (CPI) retreated slightly to 6.4% in January while core inflation dropped to 5.6%. These numbers are significantly above the Fed’s target of 2.0%. Further data revealed that the country’s retail sales rose sharply in January.

As a result, analysts started to change their views about the next actions by the Federal Reserve. For example, analysts at Goldman Sachs believe that the bank will hike rates until June. Before these numbers, they were expecting the tightening to end in the first quarter.

If inflation remains red-hot, some analysts believe that the Fed could hike rates to about 6% this year. Therefore, the upcoming FOMC minutes will likely provide more color about what to expect this year. 

On the other hand, the Reserve Bank of India (RBI) will likely maintain a cautious view this year as inflation remains relatively mild. India is expected to continue benefiting from cheap crude oil and natural gas imports from Russia. In 2022, it bought millions of barrels from Russia and sold them internationally.

There will be no major economic data from India this week. The only catalyst will be minutes by the RBI that are scheduled for Wednesday. Like the FOMC minutes, these ones too will provide more information about the US.

USD/INR forecast

The daily chart shows that the USD to INR pair has moved sideways close to its all-time high of 82.96. It has moved above the 50-day moving average. Also, it has formed what looks like an ascending triangle pattern while the Relative Strength Index (RSI) has moved slightly below the overbought level.

Therefore, because of the ascending triangle pattern, we can’t rule out a situation where the pair makes a bullish breakout. If this happens, the next key resistance level to watch will be at 83.50.