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US Dollar, Rupee Outlook: USD/INR Record Highs Eyed as Nifty Sinks

US Dollar, Rupee Outlook: USD/INR Record Highs Eyed as Nifty Sinks

Daniel Dubrovsky, Strategist

US Dollar, Indian Rupee, USD/INR, Nifty 50, RBI, Coronavirus, Yes Bank - Talking Points

  • US Dollar rose to record high against the Indian Rupee as Nifty 50 sank
  • The coronavirus outbreak is complicating India’s fragile banking sector
  • USD/INR may confirm upside breakout as Nifty 50 may face 2016 lows

US Dollar Hits Record High Against Indian Rupee as Nifty 50 Plunges

The US Dollar hit record highs versus the Indian Rupee – as expected - and may continue doing so on haven demand as investors flock to U.S. Treasuries. The coronavirus outbreak threatens global growth and is also timing with a struggling local banking sector. Yes Bank – a private lending institution – was seized by the Reserve Bank of India (RBI) earlier this month. India’s Nifty 50 has followed the global dive in stock markets.

State Bank of India – a publicly listed but government-run lender – had to throw a lifeline at Yes Bank, investing 72.5b Rupees. This is as RBI Governor Shaktikanta Das vowed to provide liquidity to the hindered private lender. Meanwhile the central bank is also dealing with supporting the economy as India takes aggressive measures to help curb the spread of COVID-19.

Prime Minister Narendra Modi has asked his 1.3b citizens to “not step outside” of home unless it is critical. He mentioned that the virus is impacting the economy as it poses an “abnormal challenge” to the country. At the time of writing, there are 195 confirmed cases of the coronavirus in the country. India has also barred all incoming flights starting next week.

The RBI has aggressively increased stimulatory measures to support the economy, following a global coordinated move in central banks. These measures include conducting long-term repo operations in multiple tranches of INR1 trillion. The central bank is to begin conducting open market operations of about INR100 billion of government bonds today. The RBI has not yet cut its benchmark repo rate since February’s decision.

Indian Rupee Technical Analysis

After closing above the 2018 high at 74.4849, USD/INR has climbed into record-high territory. Prices are now attempting to confirm the upside breakout. Follow-through may see the US Dollar appreciate, eyeing the 123.6% Fibonacci extension at 75.4114. USD/INR’s uptrend is also supported by a rising trend line from February – pink line below. A daily close under may shift the immediate technical bias lower.

Negative RSI divergence is accompanying the push higher in the currency pair. That does show fading upside momentum which can at times precede a turn lower. Otherwise, the uptrend may clear immediate resistance and aim for the 138.2% extension at 76.0093. In the event of aggressive losses, rising support from July may put a pause on declines – red lines below.

USD/INR Daily Chart

US Dollar, Rupee Outlook: USD/INR Record Highs Eyed as Nifty Sinks

USD/INR Chart Created in TradingView

Nifty 50 Technical Analysis

At the time of writing, the Nifty 50 is down about 26.04% so far this month. The last time this was matched was during the 2008 financial crisis when the index dropped 26.41%. The Nifty is also looking to close under a decade-old rising support line – red lines below. If confirmed, we may see the index continue its downward trajectory as it faces lows from 2016 which may pause selling pressure as support kicks in.

Nifty 50 Monthly Chart

US Dollar, Rupee Outlook: USD/INR Record Highs Eyed as Nifty Sinks

USD/INR Chart Created in TradingView

--- Written by Daniel Dubrovsky, Currency Analyst for DailyFX.com

To contact Daniel, use the comments section below or @ddubrovskyFX on Twitter

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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