USD/INR Forecast: Signal as USD to Rupee Forms a H&S Pattern

Summary:
• The USD/INR price has pulled back recently as investors assess the monetary policy stance between the Federal Reserve and the RBI

The USD/INR price has pulled back recently as investors assess the monetary policy stance between the Federal Reserve and the Reserve Bank of India. It slipped to a low of 81.80, which was the lowest level since October 6 of this year. The USD to INR exchange rate has slipped by more than 1.6% from its highest level this year.

Fed and RBI convergence

The USD/INR price has retreated in the past few days after the latest Fed decision and US non-farm payrolls (NFP) data. In a statement on Wednesday, the Fed decided to hike interest rates by 0.75% in a bid to fight the soaring inflation. Jerome Powell insisted that the bank will continue hiking interest rates in the coming meetings. He added that rates will remain at an elevated level for a while.

The USD to INR price also retreated after the latest American jobs data. According to the Bureau of Labor Statistics (BLS), the American economy added over 200k jobs in October. The unemployment rate rose slightly to 3.7% while wage growth remained steady. 

With the Fed being data-dependent, the focus now shifts to the upcoming American inflation data scheduled for Thursday. Economists expect the data to show that consumer prices remained at an elevated level in the coming months.

The USD/INR price pulled back as investors priced in a less hawkish Reserve Bank of India (RBI). Analysts expect that the bank will continue with its hawkish tone albeit at a slower pace in the coming months. Some analysts believe that the RBI has about 50 to 60 basis points of rate hikes to go. This means that the RBI will prolong the rate hiking cycle. 

Analysts believe that the RBI needs to continue hiking as long as the Fed is doing the same. As such, they see a 35 basis point increase in December followed by several 25 bps hikes in early 2023.

USD/INR price forecast

The four-hour chart shows that the USD to INR price has pulled back recently. It has managed to move slightly below the important support at 82. The pair has dropped below the 50-day moving average and the standard pivot point. It has also formed a head and shoulders pattern, which is usually a bearish sign.

Therefore, the USD/INR price will likely continue falling as sellers target the next key support level at 81.50. A move above the pivot point at 82.3 will invalidate the bearish view.