USD/INR forecast as Indian rupee slumps to record low

The Indian rupee slump accelerated on Friday, reaching its lowest level on record as investors reacted to the ongoing trade conflict with the United States. The USD/INR exchange rate was trading at a record high of 88.20.

It is up by 5.17% from its lowest level in April this year, making it the worst-performing currency in Asia this year. 

Why the Indian rupee is plunging

The Indian rupee continued its strong downward spiral this week as market participants reacted to the ongoing trade tussle between the US and India. 

Trump has applied a 50% tariff on goods coming from the country, a move that Citi analysts believe will hit almost 1% of the GDP. Inia exported goods worth over $77.5 billion to the United States in 2024, an 11% increase from a year earlier. 

Many sectors will be impacted, including jewelry and clothing. Most importantly, the tariffs have reduced the appeal of India as a viable alternative to China. 

Most companies, such as Tesla and Apple, have recently expanded their operations in India to capitalize on the favorable relations with the US. 

Trump’s tariffs on Indian goods are in line with those of other countries. They also include a levy for its ongoing business with Russia as the war in Ukraine escalates. 

India is now working behind the scenes to reach a deal. At the same time, Narendra Modi is talking with China’s Xi Jinping as relations between the two countries improve. 

The ongoing trade conflict between the US and China will slow India’s economy, hurting the recent growth. Recent surve data showed that the economy expanded by 6.7% in the three months to June.

That growth was lower than its expansion of 7.4% in the first quarter, but higher than the 6.5% it expanded in the same period last year.

On the positive side, while India and the US do a lot of business, it still accounts for just 2% of the total GDP. 

Also, 60% of India’s economy is made up of domestic spending, which will likely keep growing as the Reserve Bank of India (RBI) cuts interest rates. It has already slashe rates by 100 basis points this year, and analysts see more cuts later this year.

USD/INR technical analysis

The daily timeframe chart shows that the USD/INR exchange rate has rebounded from 83.85 in May to 88.4 today as the rupee plunged. It moved slightly above the important resistance level at 88.18, its highest point in August and February. 

Soaring above that level invalidated the double-top pattern that was forming. It is also a sign that investors are comfortable buying above that price. 

Most notably, the USD/INR pair has formed a cup-and-handle pattern, a common continuation sign. Therefore, the pair will likely continue rising as bulls target the next psychological point at 90. 

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