USD/INR: Potential for New High on Fed Rate Hike

Summary:

The US Dollar stands to gain from a Fed rate hike at the expense of emerging market currencies with stagnant rates. USD/INR in focus.

Indian Rupee and several Asian currencies are all sagging this Friday, as yesterday’s red-hot consumer inflation figures out of the US continue to raise bets of an interest rate hike by the Fed on 16 March.

On Monday, the Rupee lost 0.73% in its worst performance in five months. This comes against the backdrop of the Reserve Bank of India holding interest rates steady at 3.35% at its last monetary policy meeting. The atmosphere of a flight to safety due to the Russian-Ukraine conflict and the expectations of a US rate hike have benefitted the greenback at the expense of emerging market currencies with stagnant interest rates such as the Rupee.

Thursday’s consumer inflation data that stayed at 40-year highs has swayed sentiment on the USD further into bullish territory. St. Louis Fed President James Bullard commented that the data had “dramatically” made him more hawkish than before.

The USD/INR is up 0.05% on the day but barely reaches gains following three days of correction from multi-year highs.

USD/INR Outlook

The price is barely clinging to support at 76.3812. If the candle closes as a pinbar below this support, this opens the door for a deeper correction towards 75.6801 (12 October 2021 high).

On the flip side, the USD bulls need to push the pair above 76.3812 and 77.0262 to send the USD/INR to new record highs, with the 127.2% Fibonacci extension of the 31 August-17 December 2021 swing at 78.0928 coming in as a potential upside target.