USD/INR to suffer additional declines next fiscal year

Coronavirus pandemic drove USD/INR to all-time-highs above 77.00 in FY21. According to FXStreet’s Dhwani Mehta, the Indian rupee enjoys four boosters to bolster its recovery over the next year. 

Key quotes

“Heading into 2021, the prospects for a continued upswing in the domestic currency appear upbeat, as India’s economy is set to recover from damage caused by the pandemic. The INR bulls remain hopeful the Finance Ministry’s USD260 billion fiscal stimulus package would help revive the economy.”

“The Reserve Bank of India (RBI) could likely maintain an accommodative stance but refrain from further rate cuts, in the face of the worryingly high inflation levels, which could threaten the economic rebound. Therefore, the Indian central bank is likely to wait for inflation to fall sustainably within its target band before acting on rates, which could render INR-positive.”

“The outlook for the greenback remains bearish amid negative US real rates, stronger economic growth prospects in Emerging Market (EM) economies, and inflating fiscal deficits – courtesy of the massive covid relief aid package.”

“The rebound in the Indian rupee against its American counterpart could run into risk should oil prices continue their rally amid coronavirus vaccine-driven optimism over a swift global economic recovery. [...] Potentially setting the stage for another setback to the rupee recovery could be the roadblocks to the vaccine rollout in the country.”

“Clearance of the powerful 70.00 support is critical to extending the rupee’s recovery rally. Acceptance above 74.30, the confluence of the pattern resistance and 50-WMA, is likely to validate a bullish breakout, calling for a test of another significant hurdle just above 76.50. The record highs could be back in the spotlight further out.”