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Indian Rupee Falls on RBI Emergency Cut, USD/INR Focuses on Sentiment

Indian Rupee Falls on RBI Emergency Cut, USD/INR Focuses on Sentiment

Daniel Dubrovsky, Strategist

Indian Rupee, US Dollar, RBI, Coronavirus, USD/INR - Talking Points

  • Indian Rupee cautiously weakens as RBI delivers emergency rate cut
  • Governor Shaktikanta Das highlighted severe macroeconomic risks
  • USD/INR closed under key support as it remains glued to sentiment

Indian Rupee Weakens After RBI Emergency Rate Cut on Virus Outbreak

The Indian Rupee cautiously weakened against the US Dollar after the Reserve Bank of India (RBI) delivered an emergency 75-basis point rate cut. That brought the repurchase rate down to 4.40% from 5.15%. Additional easing measures were also announced to help cushion the blow of the coronavirus outbreak that has been plaguing global growth. Local government bond yields declined on the announcement.

The central bank announced that it will also conduct auctions of targeted long-term repo operations (LTROs) for up to 1 trillion Rupees. The RBI also said that it is cutting the cash reserve ratio by 100-basis points to 3 percent for all banks. Governor Shaktikanta Das noted that the 5% GDP outlook for this year is vulnerable and that macroeconomic risks for the country “could be severe”.

As I noted earlier in the year and prior to the virus outbreak, India’s economy was facing the risk of stagflation amid a fragile banking sector. COVID-19 is adding further pressure on the country after Prime Minister Narendra Modi asked his 1.3b citizens to “not step outside” earlier this month. With that in mind, USD/INR may continue to focus on emerging market capital flows. Improving sentiment could pressure the pair lower.

USD/INR Reaction to RBI – 15-Minute Chart

Indian Rupee Falls on RBI Emergency Cut, USD/INR Focuses on Sentiment

USD/INR Chart Created in TradingView

Indian Rupee Technical Analysis

On a daily chart, USD/INR appears to have taken out rising support from the beginning of this month. A confirmatory downside close through former 2018 highs could place the aggressive uptrend at risk. In the event of a prolonged decline, rising support from July 2019 may reinstate the upward trajectory. Otherwise, a turn higher places the focus on the 123.6% Fibonacci extension at 75.4114.

USD/INR Daily Chart

Indian Rupee Falls on RBI Emergency Cut, USD/INR Focuses on Sentiment

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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