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USD/INR Outlook: USD Weakens But Rupee Couldn’t Gain Similar Strength

USD/INR rate turned green during the Asian session on Monday. It appears that the Indian rupee has failed to benefit from the recent weakness in the US dollar properly. This is because there are too many factors at play here that are collectively keeping the US dollar to Indian rupee exchange rate in a narrow range.

At press time, USDINR was trading at 83.21 after a 0.11% increase from its last weekly close. This price action comes as a surprise as the DXY index started the week in red. As a result, the dollar extended its losses on Monday as it slid against most of its peers.

However, the Indian rupee couldn’t gain a similar strength against the dollar and was down slightly in terms of the greenback. This weakness in the rupee can be attributed to foreign exchange outflows. In addition, the high demand for the US dollar among traders and importers is also weighing on the Indian currency.

The latest data also shows that overseas investors have been aggressively dumping Indian equities since September. They have collectively sold more than $5.1 billion worth of Indian shares.

Nevertheless, traders are still expecting the rupee to gain strength soon if the ongoing correction in the DXY index deepens. Additionally, the falling long-term bond yields may also act as a headwind for the USD/INR pair in the coming weeks.

The 10-year treasury yield is now standing at 4.59% after a major pullback from 5.02%. This was the highest level in more than a decade. This has resulted in a huge weakness in the US dollar compared to the major global currencies. As a result, the DXY index has slid 2.21% from its yearly peak.

USD/INR Forecast & Analysis

Technical analysis of USD/INR is not easy due to the frequent interventions from the Reserve Bank of India (RBI). The Indian central bank’s efforts gave the local currency much-needed strength at a time when the dollar strength index was soaring. However, the falling bond yields may strengthen the rupee organically in the coming weeks if the ongoing trend continues.

USD/INR chart
USD to INR Technical Analysis

As visible on the chart above, the 83 level remains the most critical level on the chart. A clear breakdown below this level will be very bullish for the Indian rupee as it may soar against the US dollar afterward. The current macroeconomic situation is pointing towards such a move.