USD/INR: Raised Fed Hike Bets Could Send Pair to New Highs

Renewed bets of a 50bps rate increase by the Fed in May are driving the USD/INR rate up this Wednesday. The pair rose 0.25% as of writing after comments from St. Louis Fed President James Bullard and Fed Chairman Jerome Powell gave indications that the Fed was not done with its rate tightening cycle in 2022. 

In a recent interview, Bullard called for rates to go as high as 3%. At the same time, the Fed Chief indicated in a recent event that the Fed would take “necessary steps” to address consumer inflation, which according to Powell, was “much too high.” Powell went ahead to say that the Fed would continue to hike rates and that these rate hikes could go as far as 50bps if necessary. These comments sparked a rise in the US long term bond yields and spurred dollar demand at the expense of the Indian Rupee and other emerging market currencies. 

In its last meeting, the Reserve Bank of India had kept India’s interest rates unchanged, prompting a divergence in rate policy that has pushed the USD/INR to all-time highs at 77.1590. Since then, some profit-taking had ensued, bringing the USD/INR towards 75.7750 before new demand crept in on Monday to send the pair higher. 

USD/INR Outlook

The pair is about to mount a challenge on the 76.3812 resistance level. If the bulls uncap this barrier, the 77.0262 resistance becomes available. A break of this resistance level sends the USD/INR into record territory,

where potential targets lie at the Fibonacci extension points marked on the chart. A price swing from 1 October 2019 to 22 April 2020 and back to the 24 February 2021 low points to Fibonacci extension levels at 78.8091, 80.6114, and 81.5523. These correspond the 100%, 127.2% and 141.4% Fibonacci extension levels. 

On the flip side, rejection at the 76.3812 resistance barrier allows the bears to initiate a push towards the 75.6801 support (12 October 2021 and 14 February 2022 highs). If the price decline takes out this support level, 75.2034 (6 December 2021 low and 28 January/17 February 2022 highs) becomes the next available target. Additional targets to the south lie at 74.8389 and 74.5164, where the 1/22 February 2022 lows are located. 

USD/INR: Daily Chart

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