Created
: 2025.08.05
2025.08.05 13:37
The Indian Rupee (INR) opens on a gap-down note against the US Dollar (USD) on Tuesday, sending the USD/INR pair to its all-time high of around 88.25. The Indian currency faces intense selling pressure as trade tensions between India and the United States (US) have escalated.
On Monday, US President Donald Trump threatened, through a post on Truth.Social, India again with higher tariffs for buying Oil from Russia, a move that has been interpreted as funding Moscow to continue the war with Ukraine.
"India is not only buying massive amounts of Russian Oil, they are then, for much of the Oil purchased, selling it on the Open Market for big profits. They don't care how many people in Ukraine are being killed by the Russian War Machine," Trump wrote. He further added, "Because of this, I will be substantially raising the Tariff paid by India to the USA."
Last week, US President Trump announced 25% tariffs on imports from India along with an unspecified duty for buying Russian Oil, citing that their tariffs are too high.
In response to Trump's tariff threats, India's Ministry of External Affairs (MEA) stated that the targeting of India is "unjustified and unreasonable", Reuters reported. To support their response, the agency released a six-point statement sheet on Monday, which also stated that India will take all necessary measures to safeguard its "national interests and economic security".
According to India's response sheet, Washington praised New Delhi for buying Russian Oil as the act brought stability in the global energy market.
USD/INR revisits all-time highs around 88.25 at open on Tuesday. The near-term trend of the pair remains bullish as the 20-day Exponential Moving Average (EMA) slopes higher around 86.92.
The 14-day Relative Strength Index (RSI) oscillates within the 60.00-80.00 range, suggesting strong bullish momentum.
Looking down, the 20-day EMA will act as key support for the major. On the upside, the February 10 high around 88.15 will be a critical hurdle for the pair.
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
: 2025.08.05
Last updated
: 2025.08.05
FXStreet is a forex information website, delivering market analysis and news articles 24/7.
It features a number of articles contributed by well-known analysts, in addition to the ones by its editorial team.
Founded in 2000 by Francesc Riverola, a Spanish economist, it has grown to become a world-renowned information website.
We hope you find this article useful. Any comments or suggestions will be greatly appreciated.
We are also looking for writers with extensive experience in forex and crypto to join us.
please contact us at [email protected].
Disclaimer:
All information and content provided on this website is provided for informational purposes only and is not intended to solicit any investment. Although all efforts are made in order to ensure that the information is correct, no guarantee is provided for the accuracy of any content on this website. Any decision made shall be the responsibility of the investor and Myforex does not take any responsibility whatsoever regarding the use of any information provided herein.
The content provided on this website belongs to Myforex and, where stated, the relevant licensors. All rights are reserved by Myforex and the relevant licensors, and no content of this website, whether in full or in part, shall be copied or displayed elsewhere without the explicit written permission of the relevant copyright holder. If you wish to use any part of the content provided on this website, please ensure that you contact Myforex.
Myforex uses cookies to improve the convenience and functionality of this website. This website may include cookies not only by us but also by third parties (advertisers, log analysts, etc.) for the purpose of tracking the activities of users. Cookie policy