2024-04-15 22:02:00 ET
The Indian rupee continued its freefall this week as investors focused on the growing risks in the financial market. The USD/INR exchange rate surged to a high of 83.77 this month, its highest point on record. It has jumped by over 3.3% from its lowest level in 2023.
Why the Indian rupee is crashing
There are several reasons why the USD to INR exchange rate has continued soaring in the past few months.
First, the pair has done well because of the strong US dollar. The US dollar index (DXY) has soared to $106.5 on Monday, much higher than the year-to-date low of $100. This surge happened after signs emerged that the Fed would maintain a hawkish stance.
Recent economic numbers showed that the US inflation rose to 3.5% in March while the core CPI soared to 3.8%. These numbers were significantly higher than the Federal Reserve’s target of 2.0%.
At the same time, the unemployment rate retreated to 3.8% in March as the economy created over 303k jobs. That is a sign that the economy is doing well, removing the incentive for the Fed to start cutting rates.
Second, the Indian rupee is crashing as concerns about the energy sector continued after Iran attacked Israel during the weekend. The risk is that the crisis in the Middle East will lead to higher energy prices.
Brent has already jumped to $91 while the West Texas Intermediate (WTI) has moved to over $87. That is an important move considering that oil is India’s biggest import. As such, there are signs that India will spend more money on imports.
Further, there are signs that the Fed and the RBI will diverge this year. While the Fed will maintain a hawkish tone, the RBI could start cutting rates in the next few months.
USD/INR technical analysis
The other reason why the USD to INR is rising is based on technicals. As I have written before, the pair has formed an ascending triangle pattern, which is a positive sign.
The pair has moved above the crucial resistance point at 83.40, its highest swing in August and December last year. It has also remained comfortably above the 50-day and 100-day Exponential Moving Averages (EMA).
Therefore, there is a likelihood that the pair will continue rising in the coming days. If this happens, the next point to watch will be at 84.
However, the risk for this thesis is that the Reserve Bank of India (RBI) could deploy its billions of dollars in reserves to boost the rupee. The bank has over $642 billion in reserves, with $44 billion of these being in the form of gold.
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