Rupee likely to depreciate amid divergence among the Federal Reserve and the RBI

The RBI’s Monetary Policy was out yesterday and they have kept the key policy rates unchanged making the rupee vulnerable to decline. Read on to find out more.

The Reserve Bank of India (RBI) monetary policy was out yesterday where they have maintained a status quo regarding the key policy rates and also standing firm on its accommodative stance. This outcome was certainly opposite to the stance that the US Federal is having. In fact, even the benchmark bond yields are witnessing spikes and it was quite anticipated that there might be some change in stance from the RBI.

However, maintaining its accommodative stance and dollar index getting stronger in yesterday’s trade, it is likely that the rupee will depreciate. With a jump in US inflation to about 7.5%, Saint Louis Fed Chair James Bullard said that the Federal Reserve should certainly consider hiking rates by around 100 basis points (one per cent) over the coming three policy meets.

At the 20-day and 50-day exponential moving average (EMA), the USD/INR pair is taking good support. If we look at its short-term trend on daily charts then on January 27, 2022, it made a higher top, while on February 1, 2022, it made a higher bottom. Moreover, connecting the trendline from the high made on December 15, 2021, through the recent higher high just mentioned above, is signalling a potential trend reversal.

In the last update, we had mentioned the formation of an inverse head and shoulder pattern on the lower timeframes and target of which is yet to be achieved. Having said that, in the near term 75.43 would be its crucial resistance which is also its 61.8% retracement level and on the downside 75.1 would act as support followed by 74.76.

Also read: RBI policy review: Interest rates on hold yet again and other key takeaways