The USD/INR exchange rate is loitering near its all-time high as the US dollar index plunges and the market waits for the upcoming Reserve Bank of India (RBIA) interest rate decision. The pair was trading at 87.12 on Monday, a few points below the all-time high of 87.9640. So, what next for the Indian rupee?
USD/INR wavers ahead of RBI decision
The USD/INR pair will be in the spotlight this week as investors reflect on the upcoming RBI interest rate decision.
Analysts anticipate that the bank will deliver another rate cut this week in a bid to supercharge an economy that is showing signs of slowing down.
The bank slashed rates by 0.25% last month, making it the first time that it slashed rates since 2020. It attributed this cut to the country’s economic growth and the “tremendous” global uncertainties.
The RBI expects that the Indian economy will grow by about 6.7% this year, an improvement from last year’s 6.0%. This growth will be mostly because of the ongoing growth trends and increased government spending.
Still, the biggest concern for the Indian economy is that Donald Trump plans to increase tariffs on goods from the country. He aims to achieve that by implementing reciprocal tariffs, where it adds the same tariffs that a country levies the US.
India has some of the highest tariffs globally, with an average tariff of about 11.5%. As such, implementing such huge tariffs will likely hurt the economy by reducing the amount of imports.
India has tried to smooth tensions with the Trump administration, including by having Modi meet Trump in Washington. In that meeting, the two leaders agreed to boost the bilateral trade between the two countries to over $500 billion by 2030.
Therefore, the RBI may decide to cut interest rates to boost economic growth ahead of Donald Trump’s tariffs.
The RBI will also cut rates because India’s inflation is falling. Recent economic numbers showed that the headline consumer inflation dropped to 4.31% in January, a big drop from 6.21% in October.
Read more: RBI cuts repo rate: which sectors and stocks could benefit?
US dollar index has crashed
The USD/INR exchange rate has reacted to the upcoming US dollar index (DXY) crash. It has dropped from over $110 earlier this year to the current $103.75, its lowest level since November 6 last year.
The greenback has plunged because of the ongoing fear that US economic growth will slow, which will push the Federal Reserve to cut interest rates.
Analysts anticipate that the bank will now slash interest rates by 0.25% in its meeting in May, followed by two or three more later this year.
USD/INR technical analysis
USDINR chart by TradingView
The daily chart shows that the USD to INR exchange rate has been in a strong uptrend as the Indian rupee has retreated in the past few years. It rose from a low of 82.65 in February 2024 to 87.12 today.
The pair has moved above the 50-day and 25-day Exponential Moving Averages (EMA), a sign that bulls are in control.
It has also formed a symmetrical triangle pattern, whose two lines are about to converge. This triangle is part of the bullish pennant pattern.
Therefore, the pair will likely have a strong bullish breakout, with the next level to watch being the all-time high of 88. A move below the support at 86 will invalidate the bullish outlook.
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