The USD/INR currency pair is expected to rise above 65.0 from May till June’s Federal Open Market Committee (FOMC) meeting and to retreat post the Federal Reserve’s June gathering. The pair is likely to consolidate at around 64.5 for now due to the Reserve Bank of India’s (RBI) two-way operations.
Foreign investors have pulled out funds from Indian equity markets after the RBI unexpectedly raised its reverse repo rate by 25 basis points to 6.00 percent on April 6, leading to a slightly weaker INR that underperform all regional peers except the KRW suffered from hovering geopolitical tensions. The 64.16 handle is now serving as a support level for USD/INR.
Since February 1, the INR has rallied on the back of the Union Budget with fiscal prudence, the RBI’s neutral monetary policy stance and increasing hopes for further economic reforms post the BJP’s victory in the UP assembly election. In the meantime, a broadly weakening dollar helped shore up the INR as well.
"We stay watching the result of the French presidential election that could be a game changer and are awaiting US Treasury Secretary Steven Mnuchin’s regulation relaxation due in June," Scotiabank commented in its latest research report.