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USD/INR Spikes to New Record Highs on Hawkish Fed, FPI Outflows

The USD/INR pair has climbed sharply to new highs, as the Rupee continues to depreciate against the greenback on the back of rising crude oil prices, a hawkish Fed and consistent foreign fund outflows from the Indian economy. The pair hit the 78.6850 price mark at 0606 hours GMT to hit a new record for the pair as it gained 0.34% to mark a third straight day of gains and a fifth in six trading sessions.

The Rupee’s decline comes as rising crude oil prices continue to pressure the currency of the 3rd largest crude oil importer. Brent crude is up 1.15% on the day and is off to a 4th winning start as the energy markets prepare for a potential cutback in Russian oil imports into Europe.

Crude oil prices are also rising after the UAE said it had no more spare production capacity, preventing it from contributing to any attempts to boost supply. UAE had, along with Saudi Arabia, been seen as the only two OPEC nations with additional capacity to ramp up production to compensate for any lost supply from Russia. 

Interest rate expectations are also pushing the greenback higher. FOMC member Christopher Waller has explicitly called for another 75bps rate increase in the FOMC’s July meeting. Higher interest rates in the US are pulling investment funds out of emerging markets. For example, India has seen capital outflows topping $28 billion from the stock markets. Foreign portfolio investments in the bond market are also down $1.7 billion.

USD/INR Outlook

The break of the resistance formed by the 161.8% Fibonacci extension level at 78.3791 by the 27 June candle has been extended by the bulls on the day. This also marks the completion of the bullish flag. The next target in line is the 200% Fibonacci extension level earlier derived from a trace that started from the 4 April swing low to the 25 April swing high, ending at the 5 May swing low. This price target lies at 78.9508. 

On the flip side, the bears would be seeking a breakdown of the support at 78.3748 and a decline below the ascending trendline, targeting 77.8709 initially. This is where the previous highs of 20 May/9 June 2022 and the prior low of 21 June is found. Below this level, an additional downside target comes in at 77.6534 (3 June high), before the 11 May low at 77.1577 forms another southbound target.

USD/INR: Daily Chart