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USD/INR Price Analysis: Key support may hold on India stagflation threat

  • USD/INR may defend contracting triangle support on fears of stagflation in India. 
  • High retail inflation is likely to complicate matters on the growth front. 

USD/INR may bounce up from key support as markets may offer Indian Rupee on Stagflation fears. 

The currency pair is trapped in a narrowing price range since September. Currently, the lower edge of the triangle is located at 70.55. 

USD/INR may gap lower around 70.55 as Indian equities may open higher, tracking the overnight record highs in US stocks. 

The support, however, will likely hold ground, fueling a bounce as Indian stocks could surrender early gains, if any, as the spike in inflation is being viewed by analysts as an "unwanted complication" in a slowing economy. 

India's consumer price inflation fastened to a six-year high of 7.35% in December, the official data released on Monday showed. The inflation breached the upper end
of the Reserve Bank of India's (RBI) 2.-6% target band for the first time since July 2016. 

As a result, the RBI may be forced to extend the pause in the rate-cutting cycle. The central bank kept interest rates unchanged last month, having reduced borrowing costs by 135 basis points since February 219. 

However, the falling odds of another rate cut may not help Rupee, it is likely to complicate matters on the growth front. Many economists think India is facing Stagflation - an economic trend marked by rising inflation and falling GDP growth.

The economy is forecasted to grow at an 11-year low of 5% in 2019/20 fiscal year ending in March and with inflation rising to multi-year highs, the RBI has minimal room at best to act. 

Daily chart

Trend: Neutral

Technical levels

 

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