USD/INR: Likely to continue to trade between 70.6 and 72.0 – Danske Bank

Analysts at Danske Bank expect the USD/INR pair to remain around the 71 area over the next three months and then to move modestly higher. 

Key Quotes: 

“USD/INR has moved in a broad range between 70.6 and 72.0 since early August and we expect this to continue in the short term. India has seen political turmoil lately due to a law called the Citizenship (Amendment) Act, which is criticised for discriminating against Muslims. Inflation shot higher to 7.4% in December due to a food supply shock pushing up the prices of onions and other vegetables. The jump is likely to be temporary as it is supply driven, but we expect Reserve Bank of India to be on hold for now at least until inflation moves lower again. RBI has an inflation target of 4%, with a range of +/-2% around the target. The RBI cut rates five times in 2019 as GDP growth was flagging. Q4 GDP growth fell to 4.6% y/y in Q4 19, the lowest level since 2013.”

“In the short term, inflows into emerging markets and the strength of the CNY support the INR. We expect USD/INR to be broadly unchanged around 71 in 1M and 3M but to rise to 71.5 in 6M and 72 in 12M as RBI easing returns to the table.

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