USD to INR Forecast: Is the USD/INR Climb to 78 Inevitable?

The USD/INR price is hovering near its all-time high as the US dollar continues its strength. The pair is trading at 77.84, which is a few points below the all-time high of 78.28. It has jumped by more than 8% from its highest point in 2021. In this USD to INR forecast, we will assess why the pair has risen and what to expect in the coming weeks.

RBI and Fed convergence

The USD to INR has risen mostly because of the strong US dollar. The dollar index is trading near its highest level in over four years as the Fed embraces an extremely hawkish monetary policy decision. Last week, the Fed decided to hike interest rates by 0.75% and Jerome Powell warned that similar hikes were likely. 

The Reserve Bank of India (RBI) has also made a turnaround and embraced higher interest rates in its battle against inflation. In May, the central bank made an unexpected 40 basis point rate hike, bringing the total YTD hikes to 90 basis points. The bank will likely continue hiking this year as the cost of living in India rises.

Meanwhile, the USD/INR price has jumped because of the rising fear of a recession. A poll of analysts by the WSJ noted that odds of a recession in 2022 was 44%. This was a significant increase from the previous estimate of 28%. In periods of such fears, investors tend to park their funds in US dollars.

The next key catalyst for the pair will be the latest testimony by Jerome Powell and housing data that are scheduled for this week.

USD to INR forecast

The weekly chart shows that the USD/INR price has been in a strong bullish trend in the past few months. The pair moved above the key resistance level at 77.42, which was the previous all-time high. It has then managed to move above the 25-week and 50-week moving averages.

Also, it has moved above the ascending trendline shown in red. Therefore, there is a likelihood that the pair will continue rising as bulls target the next key resistance level at 80. A drop below 77.42 will invalidate this view.