USD/INR flattens while Indian Rupee underperforms ahead of India’s CPI data
- USD/INR opens flat while the Indian Rupee depreciates against its other peers ahead of the Indian CPI data for May.
- The Indian retail CPI is expected to have grown at a slower pace.
- Washington will likely extend the 90-day tariff deadline for some of its trading partners.
The Indian Rupee (INR) opens on a slightly weak note against its major peers on Thursday ahead of the Indian Consumer Price Index (CPI) data for May, which will be published at 10:30 GMT. Investors will pay close attention to the retail inflation data as it will indicate whether the Reserve Bank of India (RBI) will cut interest rates again in the August monetary policy meeting.
Economists expect the Indian retail headline inflation data to have grown at a modest pace of 3% compared to 3.16% in April. The estimated figure is the lowest level seen since April 2019. Signs of decelerating inflationary pressures encourage RBI officials to endorse further monetary policy expansion.
In last week’s policy meeting, the RBI changed its stance from “accommodative” to “neutral”, stating that there is little room for further policy-easing after front-loading interest rate cuts. The Indian central bank slashed its Repo Rate by 50 basis points (bps) to 5.5% and reduced Cash Reserve Ratio (CRR) by 100 bps to 3%.
Foreign Institutional Investors (FIIs) have also appeared to be cautious ahead of the inflation data, which resulted in a small sale of Indian equities worth Rs. 446.31 crores on Wednesday.
Meanwhile, the World Bank slashed India’s economic growth forecasts for FY26 by 40 bps to 6.3% on Tuesday. Still, the institution expects the nation to be the fastest-growing of the world’s largest economies. The bank cited weaker export activity amid global trade barriers as the key reason behind the downward revision in economic growth.
Daily digest market movers: Indian Rupee trades flat against US Dollar while Greenback suffers
- The Indian Rupee opens flat to near 85.46 against the US Dollar (USD) on Thursday. The USD/INR pair wobbles, even though the US Dollar is facing backlash from uncertainty surrounding the United States' (US) tariff policy. The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, extends its Wednesday’s underperformance to near 98.30, the lowest level seen in over seven weeks.
- Market experts struggle to gauge the likely outcome of new economic policies announced by US President Donald Trump after returning to the White House due to his erratic statements on the tariff structure.
- On Wednesday, US President Trump signaled while responding to reporters at the Kennedy Centre that he could extend the 90-day tariff deadline, which is scheduled to expire on July 8.
- “Willing to extend trade deadlines but won't need to,” Trump said. US Treasury Secretary Scott Bessent also told the House Tax’s writing committee that the tariff pause could be extended for 18 countries who are negotiating in “good faith”, according to CNBC.
- The comments from Donald Trump came after he stated that he will send trade letters to countries within 1-2 weeks saying, “This is the deal, you can take it or you can leave it.”
- On the economic front, investors await the US Producer Price Index (PPI) data for May, which will be published at 12:30 GMT. The producer inflation data is expected to show that business owners raised prices of goods and services at their premises. Prior to the day, the Consumer Price Index (CPI) report for May showed that price pressures grew at a moderate pace, which indicates that the impact of Trump’s tariff policy has not yet started feeding into the economy, or business owners released inventory accumulated ahead of the reciprocal tariff announcement.
- Meanwhile, the Federal Reserve (Fed) is unlikely to open for lowering interest rates until officials get clarity on the likely consequences of Trump’s economic policies.
Technical Analysis: USD/INR skids below 20-day EMA
The USD/INR appears vulnerable near its weekly low of around 85.47 during Asian trading hours on Thursday. The near-term outlook of the pair turns bearish as it slides below the 20-day Exponential Moving Average (EMA), which trades around 85.48.
The 14-day Relative Strength Index (RSI) hovers inside the 40.00-60.00 range, indicating a sideways trend.
Looking down, 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. On the upside, the pair could revisit an over 11-week high around 86.70 after breaking above the May 22 high of 86.10.
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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