Indian Rupee Forecast 2016: GBPINR to Fall

The pound to rupee exchange rate is predicted to edge lower in 2016 according to our latest forecasts.

India is avoiding much of the flack hitting the emerging markets at the moment, coming from both a fear of higher U.S interest rates and the commodity price rout. 

As a consequence its currency, the rupee, has appreciated along the way, and should by rights continue into 2016. 

Below is a fundamental and technical overview for both the short and long-term, and a chart analysis specifically for the GBP to INR conversion.

Rupee Fundamentals 

India is now the fastest growing economy in the world, having taken over the title from China in the last quarter of 2015.

The IMF described it as a “bright spot” in the global landscape with both short and long-term growth potential.

According to forecasts from Bank of America, India is expected to have recorded a 7.4% increase in growth in 2015.

This would be a basis point above the previous year’s 7.3% rise and higher than China’s 6.9%.

Unlike China which is slowing down, India is expected to grind higher, with 7.6% growth in 2016 and 8.0% in 2017.

India is also one of the few emerging market economies not heavily reliant on commodity exports for revenue, and benefits from a diversified economy.

If anything the fall in commodity prices has helped reduce the country’s perennial trade deficit, since oil is a major import.
With so many economic plusses it would seem the outlook for the rupee would be tilted to the upside.

HSBC Favours the Rupee

Indeed, analysts at HSBC agree, pointing out that the rupee was the strongest EM currency in 2015 and they expect “its resilience” to continue into 2016.

India’s positive terms of trade and an acceleration of FDI, or ‘inward directed investment from non-residents’, are both factors advantaging the currency too.

In fact, in-bound investment may become a primary driver of the rupee higher, as analysts at Bank of America include Indian 10-year bonds as a top 10 trade for 2016, highlighting the positive outlook.

Investors may be attracted to the potential to reap emerging market level returns in a country with a more stable diversified economy and “resilient currency” than many other emerging market country’s Chine included.

In a world which has seen a flight from most other EM’s – India may become an exception to the rule – a go-to for investors seeking higher returns put-off by more volatile EM’s and attracted to India’s relative stability.

The Technical View

But what of the charts, and more specifically the GBP/INR exchnage rate?

The long-term view shows an ugly reversal pattern potentially forming at the end of a long-term up-trend.

It could be a double top, but it is too early to say for sure.

MACD is snaking lower as well, increasing the bearish view.

However, the trend is my friend, so until the major multi-year trend-line at about 96.00 is breached the chart remains bullish.

Nevertheless, given the existence of the reversal/consolidation pattern, I would want to see a clear break above the 105/6 highs for confirmation of more upside, with an upside target from there of 110.00 initially and then perhaps even as high as high as 115.00 – or the 61.8% extrapolation of the width of the consolidation higher.

A break below the trend-line, confirmed by a move below 94.00 would probably then see further downside, first to the key lows at 90.60, and then probably lower, if a break were to occur of say 89.00 (and therefore the neckline), down to the 83.00s as the double-top expressed its bearish potential.

Shorter-Term Chart

The daily chart shows a recent mini-bear trend which still appears to be going lower.

There is a rough A-B-C pattern with C wave now slightly longer than A – but only just – as it’s roughly 100%, and may indicate C has run its course.

Nevertheless, there is no indication the current C leg down is about to end and reverse – so the down-trend remains in force.
MACD is also showing tentative reversal signs, as it hits a support level and starts to plateau – again a slightly bullish sign but not yet enough.

The pair has successfully broken below two strong support levels in the form of the monthly pivot and the 50-week MA at 98.40.

In the absence of any definitive signs of reversal I expect it to push lower, with a break below 96.90 signalling a probable move lower to the major multi-year trend-line at about 96.00.

To break below the trend-line might require a clear move below 94.00 as stated in the long-term forecast.