USD/INR FX Rate Prediction for 2024
The United States of America (USA) and India are two significant players in the global economy. The USA has the largest economy in the world. By 2022, the country’s GDP (Growth Domestic Product) grew to over 25,46 Trillion US Dollars. GDP is a measure of the total output created within a country’s borders over a certain period of time. GDP is generally measured every year or every quarter. On the other hand, India is number one globally in terms of its population size. Based on 2022 data, Indian GDP was 3.071 Trillion USD.
In 2010, the Indian Rupee (INR) achieved a significant milestone by acquiring its distinctive symbol (₹), and setting itself apart from other countries.This was an important step reflecting the growing economic significance of India on the global stage.
The USD/INR (US Dollar vs Indian Rupee) exchange rate has undergone notable fluctuations throughout the years. Historical trends in this rate frequently mirror economic shifts, geopolitical events , and alterations in global trade dynamics.
There are various factors that influence the value of USD/INR, such as interest rate decisions, commodity prices, trade balance, global politics and more. In this context, it should be mentioned that Oil price plays an important role in both economies. India is a significant Oil importer. And the United States is the largest consumer and one of the largest oil producers at the same time.
Throughout the year 2023, the Indian Rupee has been a very stable currency and its price against the US Dollar was ranging between 80.9 and 83.6 levels. Let’s delve into the factors that can impact the currency pair’s value in the future and predict where the currency pair can be in 2024. It should be mentioned that when making financial instrument prediction, it is never guaranteed that the prediction will come true. We can only make an educated guess based on critical factors that typically influence financial markets.
Factors that influence the USD value
The US Dollar is well accepted globally and is seen as an international currency. Despite attempts by several countries such as China and BRICS nations ((Brazil, Russia, India, China, and South Africa) to challenge the USD dominance as the world’s primary currency, their efforts have historically fallen short. The value of USD is typically influenced by technical, fundamental, and international factors. Let’s explore these factors further.
Interest rates play a crucial role in shaping the value of every currency. The central banks use adjustments in these rates as a powerful tool to control the supply. When interest rates are incensed, individuals and businesses are discouraged from taking out loans from banks. As a result, less money gets printed and the value of currency increases.
In recent years the Federal Reserve, which is the central bank of the United States, has incrementally increased rates to limit the inflation. The rates were at 0.25% at the beginning of 2022, and by the end of 2023, interest rates were at 5.5%. The Federal Reserve’s commitment to a strict monetary policy is anticipated to persist through 2024 as part of the ongoing effort to address inflation concerns.
To speculate how strong the US Dollar might be in 2024, we need to take into consideration a few things. Primarily Gross Domestic Product (GDP), which is like a health check for the country’s economy. The United States has a massive, 25 trillion USD economy that keeps growing each year. In 2023, every month, the GDP was growing steadily between 2-3%. But in November, it increased a lot, hitting 5.2%. The US economy is projected to grow 2-4%
The US economy has enjoyed low, stable inflation up until 2021. In 2020 the rate was at 1.2%, in 2021 inflation was 4.7%, and in 2022 the inflation rate was 8%. The major causes of inflation were the pandemic and prior low interest rates. When interest rates are low, more people take loans and more money is in the public’s pockets, which fuels inflation. The high inflation rate is likely to remain for 2024 as there are additional challenges that need to be addressed, such as military conflicts and elections in the USA.
For the past few years, the United States has witnessed a continuous rise in the trade deficit, culminating in a historic figure of 945.32 billion U.S. dollars in 2022. Although 2023 numbers are not yet available, indications suggest a potential persistence of high trade deficits. To better understand how the trade deficit changed over the last few years, let’s take a look at the past data. The deficit stood at 393.77 billion USD in 2009 and 446.86 billion USD in 2013, underscoring a significant escalation over time.
The escalating trade deficit poses a notable concern for the US economy, as it has the potential negative impact on the value of the US Dollar. The consistent upward trend in the deficit means that more more is leaving the country than it is entering from exports.
Currently, the gross federal debt in the United States has surged past 33 trillion US Dollars, significantly surpassing the nation’s entire GDP, which stands at 25 trillion USD. This 33 USD trillion gross federal debt encompasses both debt held by the federal trust funds and government accounts, and the public. The huge disparity between the debt levels and the GDP increases concerns regarding the fiscal health of the USA, underscoring the need for careful financial management and strategic measures to address the growing debt burden.
2024 presidential elections in the United States can have a huge impact on the value of the US Dollar. Investors from all over the world closely monitor political developments in the country to decide whether it’s worth investing in the US Dollar or not. Especially the economic policies of the new administration, monetary policy decisions, and trade policies are going to leave their mark on the value of the US Dollar. At this point, it’s difficult to predict what this mark will be or will it be a positive or negative for the currency.
The military conflicts in Ukraine and Israel will keep its pressure on the US Dollar, as the United States is spending billions to help its allies with weapons and financial aid. The increased spending on weapons leaves less money for the economy and urges the government to increase money supply. The more money is printed to aid countries in war, the less value each dollar will have. It is likely these two wars will continue through the year 2024.
Factors that influence the Indian Rupee (INR) Value
Indian Rupee price is determined by a managed floating exchange rate system. This simply means that while the currency value is floating, the central bank of India intervenes in the Forex market to stabilize the national currency, but doesn’t peg the currency to a specific value. To control the INR’s value, the central bank of India uses its foreign reserves and monetary policy. There are various factors that influence the value of the Indian Rupee the most, let’s discuss them in more detail.
Inflation in India
Keeping inflation rate stable at low levels is important for every economy as high inflation damages businesses and trade. Calculating expenditure and income ratios becomes a difficult task for companies. In addition, making 5 year/10 year financial plans becomes virtually impossible when there’s high inflation. High inflation weakens the economy and weakens the national currency.
Annual inflation rate in india:
India has managed to keep inflation rate more stable than other economies. For example, inflation in the United States in 2022 was 8%, while it was only 6.7% in India. Following the Covid-19 Pandemic, the last couple of years have been highly inflationary globally.
Interest rates play a crucial role in controlling the inflation rates. When inflation is too high, the central bank of India can increase interest rates and that will reduce money supply in the economy. Fewer Indian Rupees in the pockets of Indians, the more value it has. However, increasing interest rates always comes at a cost. When money supply is reduced, businesses suffer, because individuals start to save money.
Increasing interest rates stabilizes the local currency short term, but damages the economy long term, and therefore it’s also bad for the currency’s value long term.
India’s lowest recent interest rates were at 4% from the second half of 2020 to 2022. However, starting from 2022, the rates increased gradually to 6.5%. The high inflation still poses a challenge to the Indian economy, which is the reason it’s like the interest rates to remain at around 6.5% in 2024.
Economic conditions in India
The Indian economy has experienced amazing growth rates for the past couple of years starting from the 2021. However, it should be mentioned that India’s GDP growth rate for 2019 was 3.87%, and in 2020, GDP growth rate was -5.83%. GDP (Growth Domestic Product) is a measure of the total economic output produced in a country. Typically GDP numbers are presented as yearly, quarterly, or monthly data. The higher the GDP, the better the economy. And a good economy can protect its currency. 2023 was a good year for the Indian economy. India has the largest population in the world, over 1.4 billion people, and the country is a significant oil importer. Russia’s war in Ukraine increased energy prices globally (although not as radically as it was estimated by many experts), however, some countries, such as India and China, enjoyed cheaper prices, thanks to western sanctions. Russian energy is now very limited in Europe and the country did its best to find alternative energy buyers.
India’s trade balance
Trade balance can have a significant impact on the national currency’s value. A positive trade balance is good for the local currency and vice versa. For the most part, India has had a negative trade balance, with the exception of 2020, when the number reached 0. Currently, the trade balance of India is at over -31 billion US dollars. India shows a tendency of increased negative trade balance and this trend is likely to be continued for 2024, which is bad for the local currency.
The national debt of India has been increasing over the past years gradually and the debt is likely to continue to keep growing for 2024. In 2018, India’s national debt was 1.595 trillion US Dollars. And in 2021, the debt was amounting to around 2.36 trillion US Dollars. Big national debt puts pressure on the local currency as when the time of payments comes, governments typically print more money by borrowing, which devalues local currency.
US Dollar against Indian Rupee chart
Now let’s take a look at the US Dollar vs Indian Rupee chart. On a weekly timeframe (each candle represents a week), we can notice that there’s a flag pattern. Patterns in general work better in larger than 1 day timeframes as there is less noise that can intervene with the pattern formation.
According to the pattern, USD/INR is in an uptrend, and it is expected that the price will increase at least with the same proportion as the size of the pattern’s flagpole. However, it should be mentioned that the price movement once it broke the resistance level is not as strong as expected, and there’s a chance that the price returns to the resistance level to test it. In case the 83.30 level holds the price, it can become a strong support throughout the entire 2024 year.
According to the pattern, it is likely that the value of USD/INR will vary between 83.30 and 92 levels. However, when making predictions, fundamental factors that we mentioned also need to be considered.
In order to predict where the USD/INR pair can be in 2024, we need to take into account major factors that influence both countries and their respective currencies.
India has the largest population on the planet. In addition, the country has a large number of young people that can work and contribute to the economic growth of the country. The Indian central bank has managed to protect its citizens from the high global inflation better than in other countries. On the other hand, India has a growing negative trade balance, and as a significant consumer of energies, the Indian economy is impacted by global oil prices.
As for the United States, the country has a strong economy with a low unemployment rate. However, there are important factors that will put pressure on the US Dollar for the year 2024. The US has an increasingly expanding negative trade balance that crossed the -945 billion US Dollar mark in 2022, the gross federal debt of the country is also dramatically growing (the debt currently is at little of 33 trillion USD). In addition, there are elections in the USA in 2024, and global conflicts such as wars in Ukraine and Israel have a negative effect on the USD’s value.
The fundamentals say that INR has a better start than the USD, however, technical analysis predicts the opposite. Considering all the factors, it is likely that the value of the USD/INR pair will be volatile throughout the entire 2024, and may range between 80 and 87 levels.