USD/INR opens flat ahead of fifth voting on US short-term funding bill
- The Indian Rupee flattens against the US Dollar around 88.90, with investors remaining cautious on US-India trade tensions.
- FIIs continue to pare stakes in the Indian stock market.
- The US Senate is set to vote on the stopgap bill for the fifth time.
The Indian Rupee (INR) opens on a flat note around 88.90 against the US Dollar (USD) on Monday. The USD/INR pair is broadly firm as it is still close to its all-time high of 89.12 posted on September 24.
Financial market participants remain uncertain over the Indian Rupee’s outlook amid trade tensions between the United States (US) and India for a few months. Exports from the Indian economy to the US are facing 50% tariffs, almost the highest among Washington’s trading partners, due to India buying Oil from Russia.
Over the weekend, External Affairs Minister Subrahmanyam Jaishankar said in a speech at Kautilya Economic Conclave (KEC) 2025 that both nations are struggling to reach a consensus, being unable to arrive at common ground. However, Jaishankar didn’t clarify the reasons that have refrained both nations from reaching a trade agreement.
“We have issues with the US and a big part of it because we have not arrived at a landing ground; the inability to reach there has led to tariffs being levied,” Jaishankar said, Moneycontrol.com reported.
However, Minister Jaishankar clarified that the US should respect red lines drawn by India. In the past, both nations have been unable to reach a deal as Washington wants New Delhi to open its agriculture and defense markets for US companies.
Trade tensions between the US and India have remained a major drag on the sentiment of overseas investors towards the Indian stock market. In the July-September period, Foreign Institutional Investors (FIIs) have sold equity shares worth Rs. 1,29,870.96 crores in the Indian stock market. FIIs also remained sellers in the pass two trading days of October and sold shares worth Rs. 3,188.57 crores.
The Fed is expected to cut interest rates further by 50 bps before the end of the year
- The Indian Rupee flattens against the US Dollar during opening hours on Monday, even as the Greenback trades positively. At the time of writing, the US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, trades 0.35% higher to near 98.00.
- The USD Index rises even as Washington is facing the risk of mass lay-offs in the wake of the government shutdown. Washington went into the darkness last week after the stopgap bill proposed by Republicans failed to get the required votes in the US Senate. Democrats didn’t support the short-term funding bill amid a clash over increasing healthcare benefits under the Affordable Care Act.
- On Sunday, US President Donald Trump told reporters, "It’s taking place right now," after he was asked when the White House would begin lay-offs, Reuters reported.
- The impact of a partial government shutdown would be significant on the economy and would intensify speculation of more interest rate cuts by the Federal Reserve (Fed) in the remainder of the year.
- According to the CME FedWatch tool, there is an 84% chance that the Fed will reduce interest rates by 25 basis points (bps) in each of its two policy meetings remaining this year.
- Meanwhile, both Republicans and Democrats are set to meet again on Monday to vote on the stopgap funding bill for the fifth time. The comments from members of the Democratic Party suggest that the stopgap bill is unlikely to be passed again.
- They’ve refused to talk with us," Senate Democratic leader Chuck Schumer told CBS’s "Face the Nation" program, adding that it could be solved only by further talks, Reuters reported. Meanwhile, White House National Economic Council Director Kevin Hassett told CNN that he still sees a chance of Democrats supporting the bill.
Technical Analysis: USD/INR wobbles around 88.90
USD/INR starts the week on a flat note around 88.90. The near-term trend of the pair remains bullish as the 20-day Exponential Moving Average (EMA) slopes higher around 88.60.
The 14-day Relative Strength Index (RSI) stays above 60.00, suggesting a strong bullish momentum.
Looking down, the pair could slide to near the September 12 high of 88.57 and the 20-day EMA, if it breaks below the September 25 low of 88.76.
On the upside, the pair could extend the rally towards the round figure of 90.00 if it breaks above the current all-time high of 89.12.
Indian Rupee FAQs
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.
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