The USD/INR exchange rate rose to a record high of 84.60 as concerns about the Indian economy remained. It was trading at 85.54, up by almost 2% from its lowest point in January this year. It has risen in the past four consecutive days even as the US dollar index (DXY) retreated.
India GDP concerns
A key theme in the financial market has been that the Indian economy would benefit from the Chinese economic weakness. For one, India has a good relationship with the US, meaning that many companies would opt to move their plants there.
Data released last week showed that India’s economy was not doing well. According to the statistics agency, India’s economy grew at the slowest pace in almost two years.
The GDP grew by 5.4% in the third quarter, the worst reading since the fourth quarter of 2022. It was also much lower than the 7% that analysts and the Reserve Bank of India (RBI) were expecting. Now, analysts from top banks like Barclays and Goldman Sachs have slashed their Indian GDP forecasts for the year.
Therefore, analysts believe that the weak Indian GDP data will trigger a rate cut when the RBI meets this week. This was notable since the bank was not expected to cut this year as inflation has remained sticky.
The most recent economic data showed that the headline Consumer Price Index (CPI) rose from 5.49% in September to 6.21% in October. That report was higher than the median estimate of 5.81%. It was also the highest inflation reading since September 2023 and was mostly because of the rising food prices.
Therefore, a decision to cut interest rates this week means that the RBI risks high inflation figures in the country.
Read more: USD/INR forecast: pattern points to an Indian rupee comeback
Donald Trump’s tariff threat
The USD/INR pair has also surged as investors anticipate global trade volatility after Donald Trump moves to the White House. In a statement last week, he warned that he would apply universal tariffs to Chinese, Mexican, and Canadian imports, a move that will have a negative implication on the global economy.
He also threatened a 100% tariff on BRICS countries if they decide to ditch the US dollar for their trade. BRICS was originally made up of Brazil, Russia, India, China, and South Africa. It has now increased to more countries like Saudi Arabia, Ethiopia, Iran, and Egypt.
Meanwhile, Indian stocks have also retreated in the past few weeks, with the NIFTY 50 index falling by 8.20% from its highest level this year.
USD/INR technical analysis
The daily chart shows that the USD/INR exchange rate has been in a steady upside in the past few months. It has now jumped to a record high of 84.54, making the Indian rupee one of the worst-performing currencies in the market.
The pair has remained above the 50-day and 25-day Exponential Moving Averages (EMA). Also, the MACD indicator has remained above the neutral level, while the Relative Strength Index (RSI) have pointed upwards. It is also higher than the Ichimoku cloud indicator.
Therefore, the pair’s outlook is bullish, with the next point to watch being 86. This bullish outlook will remain as long as the pair stays above the two moving averages.
However, as we have written before, it has formed a rising wedge on the weekly chart, pointing to a potential retreat in the near term. That drop, if it happens, would push the pair to the lower side of the ascending channel to about 84.
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