USD/INR extends rally, eyes on Trump's tariffs on China

• The Indian Rupee weakens in Tuesday's Asian session. 
• A firmer USD, ongoing Foreign Institutional Investors (FIIs) outflows, and downbeat Indian economic data weigh on the INR. 
• Fed's Bostic and Daly are set to speak later on Tuesday.

The Indian Rupee (INR) softens on Tuesday, pressured by the stronger US Dollar (USD). Furthermore, persistent foreign capital outflows since late-2024 and downbeat India's Gross Domestic Product  (GDP) data undermine the INR. The country's economy is estimated to grow at a slower pace in the coming years, as its run of 8% annual growth proved to be unsustainable.

On the other hand, US President Trump's one-month pause on tariffs against Canada and Mexico could weigh on the Greenback and provide some support to the INR. Additionally, the intervention by the Reserve Bank of India (RBI) by selling the USD might help limit the INR's losses. 

Looking ahead, traders will monitor the development surrounding Trump tariff policies. China is due to be hit with across-the-board tariffs of 10% that begin at 05:00 GMT on Tuesday. Federal Reserve (Fed) Raphael Bostic and Mary Daly are scheduled to speak later on Tuesday.

Indian Rupee edges lower amid tariff jitters

• Late Monday, Trump said that he will pause the 25% tariffs on goods entering the United States from Mexico and Canada for one month. While Mexico and Canada have had tariffs postponed for at least 30 days, China stands alone in facing the new Trump levies. 
• The US Manufacturing PMI rose to 50.9 in January from 49.3 in December, according to the Institute for Supply Management (ISM) on Monday. This reading came in better than the estimation of 49.8.
• Boston Fed President Susan Collins said on Monday that it's really appropriate for policy to be patient, careful, and there's no urgency for making additional adjustments, especially given all of the uncertainty. 
• Chicago Fed President Austan Goolsbee said that a very lack of clarity requires a go-slower approach on interest-rate cuts.
• Markets reduce expectations of rate cuts from the Fed in the wake of the tariff news, with futures pricing in just a 50% odds of two cuts this year, according to the CME FedWatch tool.  

USD/INR maintains its positive view, but an overbought RSI warrants caution for bulls

The Indian Rupee remains weak on the day. The strong bullish outlook of the USD/INR pair remains in play as the price has broken above the trading range and is well-supported above the key 100-day Exponential Moving Average (EMA).

Nonetheless, the 14-day Relative Strength Index (RSI) moves beyond the 70.00 mark, warranting some caution for bulls. The overbought condition suggests that further consolidation cannot be ruled out before positioning for any near-term USD/INR appreciation. 

The immediate resistance level for USD/INR emerges at the 87.00 psychological mark. Sustained gains above this level could see a run to 87.28, the all-time high. 

On the flip side, the initial support level emerges at 86.51, the low of January 31. . A breach of the mentioned level could drag the pair lower to the next downside target at 86.31, the low of January 28.