USD/INR sits and waits for the RBI interest rate decision

The USD/INR exchange rate moved sideways on Monday as investors waited for the upcoming Reserve Bank of India (RBI) interest rate decision. The pair was trading at 83.17, where it has been at in the past few days. This price is a few points below the all-time high of 83.41.

The Indian rupee has weakened substantially against the US dollar as the latter has soared to the highest level in months. The greenback has jumped, helped by the hawkish decision by the Federal Reserve. In September, the bank decided to leave interest rates unchanged between 5.25% and 5.50%. 

The dot plot pointed to another 0.25% hike later this year, which would push rates to the highest point in more than two decades. However, some analysts and investors, like Bill Ackman, believe that the Fed is now done hiking.

The elevated rate hikes have made the US dollar more attractive. For one, cash, like the certificates for deposits (CDs) and money market funds are yielding over 5.50%. Therefore, many investors, including those from India, have moved to the safety of the US dollar.

The next key catalyst for the USD/INR pair will be the upcoming RBI interest rate decision scheduled for Friday this week. Economists expect the bank will decide to leave rates unchanged at 6.50%  and the cash reserve ratio at 4.50%.

India has emerged as one of the fastest-growing economies this year, with economists expecting it to grow by over 7% this year. Inflation has also been trending down as India has taken advantage of lower oil prices from Russia. In a note, analysts at ING wrote that:

“Seasonal food prices have reduced since then as supply conditions have improved following erratic monsoon weather. Currently, the RBI’s third-quarter inflation forecast is above 5%. As such, rates may remain unchanged through the year-end.”

The USD to INR exchange rate has been in a tight range in the past few months. It was trading at 83.02 on Monday, a few points below its record high of 83.41. The pair has remained above the 25-day and 50-day moving averages.

Most importantly, the pair has formed an ascending triangle pattern whose upper side is at 83.05. The MACD has moved slightly above the neutral point. Therefore, the pair will likely continue rising as buyers target the key resistance at 84. This view will be confirmed when it moves above 83.41.

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