Currency Market Update: Is Rupee likely to depreciate?

The RBI's Monetary Policy was released yesterday, and the key policy rates remained unchanged, leaving the rupee susceptible to further fall. Continue reading to learn more.

The Reserve Bank of India (RBI) released its monetary policy yesterday, maintaining the status quo on key policy rates but remaining steadfast in its accommodative tone. This result was obviously diametrically opposite to the US Federal’s attitude. Indeed, benchmark bond rates have been affected, and it was widely expected that the RBI would shift its stand.  

However, with the Fed maintaining its lenient approach and the dollar index strengthening in yesterday's session, the rupee is anticipated to weaken. With US inflation rising to roughly 7.5 per cent, Saint Louis Fed Chair James Bullard stated that the Federal Reserve should consider raising rates by 100 basis points (one per cent) during the next three policy meetings.  

The USD/INR pair is finding strong support at the 20-day and 50-day exponential moving averages (EMA). If we look at its short-term trend on daily charts, it made a higher peak on January 27, 2022, and a higher bottom on February 1, 2022. Furthermore, connecting the trendline from the high reached on December 15, 2021, to the latest higher high just described above indicates a likely trend reversal. 

In the last post, we highlighted the construction of an inverted head and shoulder pattern on lower timeframes, the goal of which has yet to be met. However, in the immediate term, 75.43 would be its critical resistance, which is its 61.8 per cent Fibonacci retracement level, while on the downside, 75.1 would work as support, followed by 74.76.