The Indian rupee surged on Wednesday as investors reacted to reports of a potential deal between the US and India and the several dovish statements from Federal Reserve officials. The USD/INR pair plunged to a low of 87.92, down sharply from the year-to-date high of 88.86.

Indian rupee jumps amid rising hopes of a trade deal with the United States 

The Indian rupee has been in a strong uptrend in the past few months as investors reacted to the ongoing trade war between the US and India.

Donald Trump’s administration has put in place a 50% tariff on Indian goods, partly because the country continues to import Russian oil in huge quantities.

The crisis escalated last month when the US announced a surge in the H1-B visa fee to $100,000, a move that will disproportionately affect India, which has a 70% share. 

Now, according to Bloomberg, there are signs that India is accelerating its trade talks with the United States with a goal of reaching an agreement by November this year. Narendra Modi’s government hopes to reach an agreement that is mutually acceptable to the US, especially on Russian oil.

Bloomberg noted that the Russian oil issue is the main sticking point and that the other issues have been resolved.

A trade deal between the two countries would be a good thing for the Indian economy, which sells goods and services worth billions of dollars to the US. It would also ensure that dollars continue flowing to the country from the United States, especially if the H1-B visa issue is resolved.

Talks between the two countries have accelerated in the past few months, with teams from the US visiting New Delhi in November. Some of the potential concessions that India has made are buying genetically modified corn from the US. India will also buy more military equipment from American companies.

Dovish Federal Reserve statements

The USD/INR exchange rate also plunged after a series of dovish statements from some Federal Reserve officials, including Jerome Powell, the chair.

In a statement on Tuesday, Powell noted that the bank was concerned about the labor market, which has deteriorated in the past few months. A report by the Bureau of Labor Statistics in September showed that the economy created just 22,000 jobs in August.

The BLS has not released its official jobs report this month because of the ongoing government shutdown in the US. As such, investors and policymakers are focusing on the private sector report by ADP, which showed that the economy shed over 36,000 jobs last month.

Other Fed officials pointed to more interest rate cuts 4 this year. For example, Susan Collins, the head of the Boston Fed said:

“Even with some additional easing, monetary policy would remain mildly restrictive, which is appropriate for ensuring that inflation resumes its decline once tariff effects filter through the economy.”

Other Fed officials like Michele Bowman, Christopher Waller, and Raphael Bostic have all sounded optimistic on the need to cut interest rates soon. However, some officials believe that inflation is still too high and cautioned against more cuts.

USD/INR technical analysis 

USDINR price chart | Source: TradingView

The daily timeframe chart shows that the USD/INR exchange rate crashed to a low of 87.98 on Wednesday as the Indian rupee jumped. Its lowest point coincided with the highest point in February this year.

The pair has, therefore, formed a break-and-retest pattern, which is a common continuation sign. It remains above the 50-day and 100-day Exponential Moving Averages (EMA). It has also formed a hammer candlestick pattern.

Therefore, the pair will likely resume the uptrend and possibly retest the all-time high of 88.86. This rebound will likely happen if the deal between the US and China is delayed.

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