Indian Rupee Week Ahead Forecast: More Losses Possible

- Pound vs. Rupee to extend uptrend

- High probability bullish pattern informs forecast

- Rupee to be guided by external factors and CPI data

The Pound is forecast to continue its relentless climb versus the Indian Rupee in the week ahead.

The pair has formed a high probability continuation pattern on the weekly chart which indicates it is likely to rise between one and one and a half Rupees higher to a target between circa 98.25 and 98.75, subject to confirmation.

GBP to INR weekly

The pair is made up of a three bar formation.

The rising ADX indicator in the lower pane adds further corroborative evidence. ADX is short for 'Average Directional Index' and measures how strongly a price is trending.

A break above the 97.23 highs would confirm a rise up to a conservative target at 98.25.

 

The Rupee: What to Watch

The main release for the Indian Rupee in the week ahead is inflation data which is forecast to rise by 4.00% compared to the same time a  year ago when it registered 3.7% inflation.  The data which is for September is set to be released at 13.00 B.S.T on Friday, October 12.

A higher-than-expected result is likely to drive the Rupee higher as it increases the probability of the Reserve Bank of India (RBI) raising interest rates, and higher interest rates are usually positive for currency since they attract greater foreign capital inflows.

The Reserve Bank of India (RBI) said they expected inflation to rise at their meeting on Friday, October 5, which suggests there is a risk of an upside surprise.

In the meeting statement the RBI "flagged several upside risks to the inflation outlook in its accompanying statement and explicitly shifted to a more hawkish formal description of its policy stance," said Shilan Shah, senior India economist at Capital Economics.

The RBI unexpectedly left its key policy rate unchanged at 6.5% at its meeting in October following a 0.25%  hike in the previous meeting, surprising markets that expected a similar rise.

The bank was expected to raise rates to 6.75% in order to strengthen the Rupee. The RBI has been battling the sharp depreciation of the Rupee because it poses financial stability risks.

An increased risk of a credit crunch after a major Indian lender defaulted, however, may have stayed the RBI's hand. Higher interest rates would put more pressure on creditors and struggling banks and they may have wanted to avoid more crises.

Shilan Shah of Capital Economics, expects more rate hikes from the RBI eventually, however, as the central bank changed the language of its statement to reflect a more hawkish stance going forward.

"It (the RBI) also changed its policy stance from “neutral” to “calibrated tightening”. This suggests that the hiking cycle is not over just yet," said Shah.

Advertisement
Lock in Sterling's current levels ahead of potential declines: Get up to 5% more foreign exchange for international payments by using a specialist provider to get closer to the real market rate and avoid the gaping spreads charged by your bank when providing currency. Learn more here