INR-USD heading to 84/$ on medium-term outlook

However, this ascent may face resistance from RBI, which has actively worked to maintain the USD/INR below 83.40 for the past month. In the event of a renewed upward momentum in the dollar index, the challenge for the RBI to curb volatility in the medium term may intensify, said Tapish Pandey, research analyst at SMC Global Securities Ltd

Consolidation

• Dollar Index facing resistance at 107
• USD/INR holds strong at 83 amidst RBI’s vigilant stance
• USD/INR hovering in 83-83.40 range
• US inflation eases
• Fed rate hike expectations wane
• USD/INR resilient at 83 amidst dollar volatility
• FOMC minutes affirm restrictive policy
  

Hyderabad: Indian currency against Greenback was hovering at 83.40 on Monday (Nov 27, 2023), two per cent hgher against US dollar 81.67 on November 27, 2022, and 0.78 per cent higher from 82.75 on December 31, 2022. Home currency’s year’s best performance was 80.98 on January 22, 2023.

A gamut of factors has been influencing the local unit as US bond yields, inflation, unrest in Middle East, global headwinds, sluggish Chinese economy, demand from Indian importers, etc., making it volatile throughout the year.

Market expectations presently lean towards the Fed keeping rates unchanged in December, with reduced bets on rate cuts in March, observes Tapish Pandey, research analyst at SMC Global Securities Ltd.

“The dollar index’s consolidation within the narrow range of 103 to 104 this week suggests that any break from this consolidation may dictate the dollar’s trajectory in the upcoming week. Considering the dynamics, any dip in the USD/INR near the 83 mark could present a buying opportunity, targeting 83.50 in the short term and 84 for a medium-term perspective,” Pandey told Bizz Buzz.

Notably, despite the broader dollar weakness, the USD/INR has not succumbed below 83, with the Indian Rupee displaying resilience. The upper limit of this consolidation stands at 83.40, serving as a current resistance level. A breakthrough above 83.40 could reignite an upward rally, potentially targeting the 84 level in the short to medium term.

“In the realm of currency pairs, the USD/INR has undergone a month-long consolidation within the range of 83 to 83.40. During this period, while the dollar index fluctuated between 107 and 103, the USD/INR displayed resilience within a narrow range, indicating inherent strength. The sustained consolidation around the 83 mark suggests a formidable support level for the USD/INR pair, further strengthened by a lack of substantial IPO flows,” further added Pandey.

However, this ascent may face resistance from the Reserve Bank of India (RBI), which has actively worked to maintain the USD/INR below 83.40 for the past month. In the event of a renewed upward momentum in the dollar index, the challenge for the RBI to curb volatility in the medium term may intensify.

In November, the headline US inflation displayed a notable deceleration, easing from 3.7 per cent to 3.2 per cent. This shift suggests a potential positive trend, especially in light of market expectations that had initially priced in a Federal Reserve rate hike. The subsequent change in market sentiment toward the Fed’s policy has, in turn, cast a shadow on the US dollar. The dollar index, observed chart-wise, exhibited respect for resistance levels around the 107 zone at the beginning of the month, but corrected to around 103 this week.

“Although currently situated below key moving averages, signaling a short-term downward trend, the 14-period momentum oscillator, Relative Strength Index (RSI), hovers on the borderline of the oversold zone, indicating limited downside potential. Despite the near-term downward trend, the overall outlook for the dollar remains bullish. This consolidation is attributed to stronger-than-anticipated data prompting a reassessment of Federal Reserve monetary policy,” explains Pandey.

However, thin trading volume, owing to the Thanksgiving holiday, is a contributing factor. Recent data showing a decrease in new claims for unemployment benefits, coupled with rising inflation expectations, has heightened concerns about the possibility of prolonged higher interest rates. The latest Federal Open Market Committee (FOMC) minutes revealed a preference for maintaining a restrictive monetary policy, dispelling expectations of imminent rate cuts.