USD/INR trades cautiously ahead of US-China trade talks
- The Indian Rupee edges higher against the US Dollar ahead of trade talks between the US and China.
- Slightly better-than-projected- US NFP data supported the US Dollar on Friday.
- The RBI front-loaded interest rate cuts to accelerate economic growth.
The Indian Rupee ticks up against the US Dollar (USD) to near 85.70 during the Asian session on Monday. The pair edges lower as the US Dollar starts the week on a frail note, with investors focusing on trade negotiations between the United States (US) and China in London later in the day. The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, corrects to near 99.00 after a decent upside move on Friday.
Over the weekend, US President Donald Trump confirmed in a post on Truth.Social that his top negotiators will be meeting with Chinese representatives in London on June 9 for extending discussions on the bilateral deal.
“I am pleased to announce that Secretary of the Treasury Bessent, Secretary of Commerce Lutnick, and United States Trade Representative, Ambassador Greer, will be meeting in London on Monday, June 9, 2025, with Representatives of China, with reference to the Trade Deal. The meeting should go very well,” Trump wrote.
Meanwhile, Beijing has also confirmed that Chinese Vice Premier He Lifeng will meet US trade delegates during his June 8-13 visit in London, according to the Chinese Ministry of Foreign Affairs (MoFA). “The first meeting of the China-US economic and trade consultation mechanism will be held with the US during this visit,” the agency reported.
The scenario of a positive outcome from the US-China trade negotiations will be favorable for the US Dollar and US assets. The two were battered during the trade war between the two nations, which followed the announcement of reciprocal tariffs by US President Trump on so-called “Liberation Day”, which is April 2.
Daily digest market movers: Indian Rupee attracts some bids at the start of the week
- The Indian Rupee strives to extend Friday’s upside move against its major peers at the start of the week. The Indian currency gained sharply on Friday after the Reserve Bank of India (RBI) announced a pro-growth monetary policy.
- Technically, an unexpected ultra-dovish monetary policy announcement often leads to selling pressure in the domestic currency. However, the Indian Rupee gains as the RBI signaled little room for more interest rate cuts. The central bank changed its stance from “accommodative” to “neutral”, citing that there is a “limited scope” to reduce the repo rate further.
- The RBI front-loaded interest rate cuts by slashing its Repo Rate unexpectedly by 50 basis points (bps) to 5.5%. Economists had anticipated a regular 25-bps interest rate reduction. The central bank also reduced its Cash Reserve Ratio (CRR) by 100 basis points (bps), a move that would allow the banking system to increase its loan disbursement limit by Rs. 2.5 lakh crore, which was meant to be held in the liquid form.
- RBI Governor Sanjay Malhotra stated that a larger-than-usual rate cut was the need of the hour, citing the need to prompt economic growth. “Front-loading rate cuts to support growth were felt necessary,” Malhotra said.
- This week, the major trigger for the Indian Rupee will be the Consumer Price Index (CPI) data for May, which will be released on Thursday. In April, the CPI data came in at 3.16% on year-on-year. In the RBI policy announcement, the central bank revised inflation guidance for FY26 to 3.7% from 4.0% projected earlier.
- On Friday, the US Dollar gained sharply after the Nonfarm Payrolls (NFP) report for May showed that the labor growth was slightly better than projected. The US economy added 139K fresh workers, higher than estimates of 130K. The Unemployment Rate remained steady at 4.2% and Average Hourly Earnings grew steadily by 3.9% on year.
- However, the official employment data beat estimates by a slight margin, market experts believe that there is an underlying weakness in the labor market. Analysts at Macquarie stated that their leading indicators suggested that some cracks have started appearing in the labor market. To support their claim, analysts stated that the jobless rate remained steady as the participation rate contracted.
- After the US NFP data, US President Trump criticized the Federal Reserve (Fed) again for not lowering interest rates. “Too late at the Fed is a disaster! Europe has had 10 rate cuts, we have had none. Despite him, our Country is doing great. Go for a full point, Rocket Fuel!, Trump wrote on Truth Social.
Technical Analysis: USD/INR holds above 20-day EMA
The Indian Rupee edges higher to near 85.70 against the US Dollar in its opening session on Monday. However, the near-term trend of the pair is bullish as it holds the 20-day Exponential Moving Average (EMA).
The 14-day Relative Strength Index (RSI) wobbles around 60.00. A fresh bullish momentum would come into action if the RSI breaks above that level.
Looking up, the pair could revisit an over 11-week high around 86.70 after breaking above the May 22 high of 86.10. On the downside, the June 3 low of 85.30 is a key support level for the major. A downside break below the same could expose it to the May 26 low of 84.78.
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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