Created
: 2025.04.01
2025.04.01 10:27
The Indian Rupee (INR) softens on Tuesday, pressured by renewed US Dollar (USD) demand. Traders grow risk-averse ahead of US trade tariffs expected to be unveiled on Wednesday, which weighs on the local currency. Additionally, a rise in crude oil prices contributes to the INR's downside as India is the world's third-largest oil consumer.
On the other hand, easing domestic inflation and the resumption of foreign inflows into stocks and bonds might help limit the Indian currency's losses. Traders brace for the US March ISM Manufacturing Purchasing Managers Index (PMI) data, which is due later on Tuesday. Also, the JOLTS Job Openings, the final S&P Global Manufacturing PMI will be published.
The Indian Rupee trades on a softer note on the day. The bearish outlook of the USD/INR pair remains in play as the price is below the key 100-day Exponential Moving Average (EMA) on the daily timeframe. The downward momentum is supported by the Relative Strength Index (RSI), which stands below the midline. Nonetheless, the oversold RSI condition indicates that further consolidation or temporary recovery cannot be ruled out before positioning for any near-term USD/INR depreciation.
The initial support level for the pair is located at the 85.00 psychological mark. Any follow-through selling below the mentioned level could see a drop to 84.84, the low of December 19, followed by 84.22, the low of November 25, 2024.
On the bright side, the crucial resistance level for USD/INR is seen at the 85.90-86.00 region, representing the 100-day EMA and round mark. Sustained trading above this level could pave the way to 86.48, the low of February 21, en route to 87.00, the round figure.
The Indian Rupee (INR) is one of the most sensitive currencies to external factors. The price of Crude Oil (the country is highly dependent on imported Oil), the value of the US Dollar - most trade is conducted in USD - and the level of foreign investment, are all influential. Direct intervention by the Reserve Bank of India (RBI) in FX markets to keep the exchange rate stable, as well as the level of interest rates set by the RBI, are further major influencing factors on the Rupee.
The Reserve Bank of India (RBI) actively intervenes in forex markets to maintain a stable exchange rate, to help facilitate trade. In addition, the RBI tries to maintain the inflation rate at its 4% target by adjusting interest rates. Higher interest rates usually strengthen the Rupee. This is due to the role of the 'carry trade' in which investors borrow in countries with lower interest rates so as to place their money in countries' offering relatively higher interest rates and profit from the difference.
Macroeconomic factors that influence the value of the Rupee include inflation, interest rates, the economic growth rate (GDP), the balance of trade, and inflows from foreign investment. A higher growth rate can lead to more overseas investment, pushing up demand for the Rupee. A less negative balance of trade will eventually lead to a stronger Rupee. Higher interest rates, especially real rates (interest rates less inflation) are also positive for the Rupee. A risk-on environment can lead to greater inflows of Foreign Direct and Indirect Investment (FDI and FII), which also benefit the Rupee.
Higher inflation, particularly, if it is comparatively higher than India's peers, is generally negative for the currency as it reflects devaluation through oversupply. Inflation also increases the cost of exports, leading to more Rupees being sold to purchase foreign imports, which is Rupee-negative. At the same time, higher inflation usually leads to the Reserve Bank of India (RBI) raising interest rates and this can be positive for the Rupee, due to increased demand from international investors. The opposite effect is true of lower inflation.
Created
: 2025.04.01
Last updated
: 2025.04.01
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