More Downside Ahead of RBI Decision

The pair will likely keep falling ahead of the RBI decision.

Bearish View

• Sell the USD/INR and set a take-profit at 78.50.
• Add a stop-loss at 79.50.
• Timeline: 1-2 days.

Bullish View

• Set a buy-stop at 79.35 and a take-profit at 80.
• Add a stop-loss at 78.50.

The USD/INR price dropped to the lowest level since July 11th as investors waited for the upcoming interest rate decision by the Reserve Bank of India (RBI). It fell to a low of 78.90, which was significantly below the year-to-date high of 80.18.

RBI Decision Ahead

The Indian rupee has done well in the past few days as the strength of the US dollar fades. The currency has jumped by 1.42% from the lowest level this year. The focus among market participants is on the upcoming interest rate decision by the RBI that is scheduled for Thursday this week.

Economists expect that the RBI will continue with its hawkish moves as it continues its battle against inflation. Precisely, they believe that the bank will hike the repo rate by between 35 and 50 basis points. Those at Bank of America expect the RBI to hike by 0.35% while those at Housing.com see the bank raising by 0.25%.

Unlike other major central banks, the RBI is not under intense pressure since inflation is moving in the right direction. The headline inflation dropped to 7.01% in June, meaning that the bank will likely lower its inflation target for the year.

Besides, there are signs that commodity prices are falling, which is a good sign for inflation. For example, the price of crude oil is substantially lower than where it was earlier this year.  Similarly, the cost of key commodities like iron ore, copper, and aluminum has dropped in the past few weeks.

Last week, the Federal Reserve decided to hike interest rates by 0.75%, bringing the total YTD increases to 225 basis points. The RBI has raised by just 90 basis points since inflation pressures are not as significant.

USD/INR Forecast

The four-hour chart shows that the USD/INR price soared to a high of 80.23 in June this year. Since then, the pair has been moving sideways as investors worry about whether the recovery has any more room left. It has dropped below the 25-day and 50-day moving averages while the MACD has moved below the neutral point.

The Relative Strength Index (RSI) has been moving downwards. Therefore, the pair will likely keep falling ahead of the RBI decision. The next key support level to watch will be at 78.50.

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