USD/INR recovers as Rupee slips on Oil bounce, equity weakness

• Indian Rupee weakens despite broader US Dollar softness, pressured by equity losses and higher Oil prices.
• The USD/INR bounces from 85.50 support, hovers near the 50-day EMA.
• US-India interim trade deal expected by July 8, tariff risks and Fed rate cut bets in focus.

The Indian Rupee (INR) trades on the back foot against the US Dollar (USD) on Monday, weighed down by month-end Greenback demand, capital outflows, and a mild rebound in Crude Oil prices. This pullback comes after the Rupee notched its strongest weekly performance since January 2023.

The USD/INR pair is edging higher, erasing all of Friday's losses and trading around 85.70 at the time of writing. However, the pair is hovering just below the 50-day Exponential Moving Average (EMA), highlighting a key technical hurdle for bulls.

Meanwhile, the US Dollar Index (DXY) opens the week on a flat footing, continuing to hover near multi-year lows around 97.00.

Despite the broader weakness in the US Dollar, the Rupee is struggling to capitalize as domestic and technical drivers are steering the USD/INR. The Greenback has ended the past five months in the red and is on track to close this month lower as well.

Expectations for an Interest-rate cut have intensified over the past few days, with traders now assigning a growing probability to policy easing as early as September. Market pricing suggests the likelihood of a rate cut in July has inched to 21.2%, while the odds for a September move have climbed to 73.8%, according to CME Group's FedWatch Tool. This shift reflects investor reaction to mounting fiscal concerns, political pressure on the Fed, and a softening US economic outlook -- all of which are fueling bets that the Fed could begin loosening policy sooner than previously anticipated.

Market movers: Rupee slides, equities fall, Oil rebounds, Industrial Output slows

• Indian equity indices ended on a negative note, adding to the pressure on the Rupee. The Sensex fell 452.44 points, or 0.54%, to settle at 83,606.46, while the Nifty declined 120.75 points, or 0.47%, to end at 25,517.05.
• "The Rupee traded weak near 85.70, down by 0.21%, as capital market weakness and recent gains prompted profit booking and long unwinding," said Jateen Trivedi, VP Research Analyst - Commodity and Currency at LKP Securities. "The pressure came ahead of a crucial week marked by key US data releases and the end of the 90-day extended tariff deadline. The Rupee is expected to remain volatile within a range of 85.35 to 86."
• India's industrial activity lost momentum in May with the Industrial Output rising 1.2% YoY, down from 2.7% in April and well below the market consensus of 2.4%, according to data released by the Ministry of Statistics and Programme Implementation on Monday. This is the weakest print since September 2024, when output rose 3.1%. However, Manufacturing Output grew by 2.6% in May, easing from 3.4% in April, pointing to continued softness in factory activity.
• Crude Oil prices are holding firm after a mild rebound on Monday, with Brent recovering to around $67.80. WTI is around $65.50, following a sharp sell-off triggered by easing tensions between Iran and Israel. While the de-escalation reduced immediate geopolitical risks, the bounce in prices is keeping the Indian Rupee under pressure, as elevated energy costs continue to strain the trade balance and fuel Dollar demand from importers.
• This mild rebound, however, comes amid growing market awareness of a planned 411,000 bpd supply increase by OPEC+ in August, the fifth successive monthly boost, which could restrain further price gains.
• The parent company of UK-based energy firm Prax Group has entered insolvency proceedings, raising concerns over the future of its Lindsey Oil Refinery. The move follows mounting financial pressure, prompting the appointment of the Official Receiver as liquidator. While refinery operations are expected to continue under special management, the development poses uncertainty for employees and broader supply chain stability.
• As the July 9 deadline for extended tariff talks approaches, US President Donald Trump reaffirmed that his administration does not intend to prolong the 90-day pause, stating the US will notify trading partners "within days" about the tariff rates they could face if no agreement is reached.
• The interim trade agreement between India and the United States is expected to be announced as early as July 8, with sources indicating that both sides have reached consensus on key terms. An Indian delegation, led by Rajesh Agrawal, Special Secretary in the Department of Commerce, has been in Washington to finalize the negotiations. While India is pushing for a complete exemption from the proposed 26% reciprocal tariffs, US officials are seeking greater market access in sensitive sectors such as agriculture and automobiles as part of the deal.
• Looking ahead, key US economic data releases are expected to drive market sentiment and Fed rate-cut expectations. The week begins later on Monday with the Chicago PMI, which will provide an early indication of how manufacturing is performing in the Midwest. After that, the focus will shift to important mid-week data, including the ISM Manufacturing and Services PMIs, JOLTS job openings, and ADP payrolls. All eyes will be on Thursday's Nonfarm Payrolls (NFP) report, a key update on the strength of the US job market.

Technical analysis: USD/INR tests 50-day EMA after bouncing from 85.50 support

USD/INR is trading around 85.71 on Monday, testing the 50-day EMA near 85.72, after bouncing off a key support level at 85.50. The pair briefly dipped below this zone but failed to sustain the move, triggering a mild intraday reversal.

The recovery comes after a breakdown below the rising wedge pattern, signaling potential bearish fatigue. Immediate support remains at 84.98, while 86.00 stands as the next resistance. The daily Relative Strength Index (RSI), hovering near 48.85, points to neutral momentum.

A decisive close above the 50-day EMA could stabilize the outlook, while failure to hold above 85.50-85.70 may invite renewed selling pressure. Traders will likely remain cautious ahead of high-impact US data this week.