USD to INR Analysis & Commentary

Updated on 19 April 2023

For the month of March'23, the USD to INR exchange rate was volatile as geopolitical events, financial year-end position adjustments & payments dominated the month. 

1. The rupee touched a high of 81.62 and a low of 82.80, because of the massive RBI intervention when they bought around $12.2 billion from the spot market. 

2. There was little movement in global crude prices, with the Indian Basket crude average around $78.55 without factoring in the discounted crude India bought from Russia. 

3. With the dollar remaining range-bound against the major currencies such as the euro, Swiss franc, yen, etc, it is reasonable to assume that, if not for RBI's massive intervention, the rupee should have strengthened to approximately 81.20/50. 

4. There was also nervousness and uncertainty in the markets because of rising inflation and interest rate hikes by the central banks. 

However, It's going to be a different story by the end of April'23. Let's dig deeper into this to understand better:

1. The CPI data released on 12th April' 23 showed inflation slowing down.

2. Inflation data for 12th April backed RBI's decision earlier this month to leave rates unchanged. US data pointed towards the Fed possibly pausing its rate hike program after another small hike in May.

3. The dollar fell sharply against all major currencies and only the Chinese Yuan's continuing weakness prevented an appreciation of the rupee.

4. The rupee did appreciate, but only partially. However, the rupee is expected to appreciate further in the months to come.

5. OPEC Plus' actions are currently the major irritant for the rupee. In a couple of weeks, they once again decided to drastically cut their total crude production, resulting in an immediate rise in global crude prices.

6. The price of the India Basket jumped from around $79 to around $87, triggering renewed fears of inflation and possible rupee depreciation.

As per our analysis, the inflation and currency forecasts could reverse sharply if crude prices stay at these elevated levels or rise further over the next couple of months. However, we believe that the crude prices are unlikely to rise sustainably despite the production cut because demand has dropped too.

The fact that Indian companies have recently signed long-term contracts with their Russian supplier for the purchase of Russian crude will also help keep the final cost of crude down. It also looks like the G-7 sanctions will stay in place for at least the next six months, so India will still be the biggest buyer of Russian crude.

In addition, we expect corporate dollar inflows due to bond and equity sales to rise in the first quarter, helping the rupee withstand any global geopolitical upheaval in the coming months. With the current rate being around 82.00, we overall expect the USD to INR spot price to range between 80.10 and 82.50 for the next few months.

Exchange Rate Analysis for Other Currencies Paired with INR