USD/INR Price Analysis: Recovery of the Indian rupee capped by 73.30

The USD/INR is falling on Tuesday on the back of the improvement in risk sentiment. During the last hours, markets across the globe eared losses supporting the demand for riskier assets.

The pair is testing the 73.30 support area and a break lower would likely clear the way to more losses. The next key support is located at the 73.00, a psychological area and also a horizontal support. A daily close below would point to further strengthening of the Indian rupee.

If the USD/INR fails to break 73.30, the US dollar could gain momentum for a rally toward 73.50. The next barrier emerges at 73.90. A daily close above 74.00 would suggest more gains ahead. A deterioration in market sentiment in Wall Street would support another rally to the 74.00 area.

Between the RBI, yields and Wall Street

The pair is moving between global risk flows and expectations about monetary policy in India. Risk appetite should continue to offer support to INR and emerging market currencies.

“Swifter growth (GDP in Q3 FY21 witnessed a mild expansion) and stubborn inflation will prompt the Reserve Bank of India to normalise monetary policy, which it has already begun in parts. In order to assuage markets, we believe the reliance on various tools to drain liquidity will become more important, like raising the reverse repo rate and the SLR. The rupee’s appreciation can be another channel and we think the RBI will ease its interventionas a result”, explained analysts from ANZ Research. They expect USD/INR to end 2021 at 71.00. “We still believe a sharp appreciation is unlikely, given policymakers’ tilt towards self-reliance and a competitive rupee. USD/INR at 70.00 should be the line in the sand.”

USD/INR 4-hour chart