USD/INR opens flat ahead of US ISM Manufacturing PMI
- The Indian Rupee trades broadly weaker, near to its all-time lows against the US Dollar.
- FIIs continue to pare stakes from the Indian stock market.
- Investors await key US labor market and ISM Manufacturing PMI data.
The Indian Rupee (INR) opens on a flat note against the US Dollar (USD) on Tuesday. The USD/INR pair trades around 88.25, slightly below the all-time high of 88.50. The pair broadly demonstrates strength as the fallout of tariffs on Indian exports by the United States (US) has weakened the Indian Rupee.
Exports from India to the US are facing the highest tariffs among Washington’s trading partners as President Donald Trump imposed an additional 25% duty on New Delhi for buying Oil from Russia.
On Monday, US President Trump highlighted trade tensions with India again, through a post on Truth.Social, citing higher trade deficit concerns, significant tariffs charged by New Delhi, and buying Oil from Russia.
“What few people understand is that we do very little business with India, but they do a tremendous amount of business with us. In other words, they sell us massive amounts of goods, their biggest “client,” but we sell them very little - Until now, a totally one-sided relationship, and it has been for many decades. The reason is that India has charged us, until now, such high Tariffs, the most of any country, that our businesses are unable to sell into India. It has been a totally one-sided disaster! Also, India buys most of its oil and military products from Russia, very little from the U.S. They have now offered to cut their Tariffs to nothing, but it’s getting late. They should have done so years ago. Just some simple facts for people to ponder!!!, Trump said.
Trade tensions between the US and India have dampened the competitiveness of Indian exports in the global market, making it hard for exporters to charge higher prices.
The ongoing US-India trade tensions have also led to a significant outflow of foreign funds from Indian stock markets. On Monday, Foreign Institutional Investors (FIIs) sold equity shares worth Rs. 1,429.71 crores. In July and August, FIIs pared stake worth Rs. 94,569.6 crores cumulatively.
Daily digest market movers: US Dollar ticks up ahead of US ISM Manufacturing PMI
- The Indian Rupee ticks up against the US Dollar, even as the latter edges higher in early trade after an extended weekend in the United States (US).
- At the time of writing, the US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, has gained marginally to near 97.85. Still, the outlook of the DXY is uncertain as it is close to its monthly low of around 97.50.
- Financial market participants brace for significant volatility in the US Dollar as a slew of US labor market-related data, including JOLTS Job Openings for July, ADP Employment Change, and the Nonfarm Payrolls (NFP) data for August, is set to be released this week. Investors will closely track job-related data to get cues about the current status of the labor market.
- Market expectations for the Federal Reserve (Fed) to cut interest rates in the September policy meeting intensified after July’s NFP report showed a dramatic downward revision in employment numbers of May and June. According to the CME FedWatch tool, there is an 89.7% chance that the Fed will cut interest rates in the policy meeting this month.
- Meanwhile, Fed officials are also guiding a dovish monetary policy stance on interest rates amid escalating labor market concerns.
- On Friday, San Francisco Fed President Mary Daly signaled that officials will reduce interest rates in the policy meeting this month, citing downside labor market risks. Daly also stated that the tariff-driven inflation will likely be temporary. “Tariffs are pushing inflation higher, and the labor market is slowing, Daly said and added, “I think tariff-related price increases will be a one-off.”
- In Tuesday’s session, the US Dollar will be influenced by the ISM Manufacturing Purchasing Managers’ Index (PMI) data for August, which will be published at 14:00 GMT. The Manufacturing PMI is seen higher at 49.0 against 48.0 in July, suggesting that the business activity contracted again but at a moderate pace. A figure below the 50.0 threshold is considered a contraction in business activity.
Technical Analysis: USD/INR trades firmly above 88.00
USD/INR demonstrates strength near a fresh all-time high around 88.50, posted on Monday. The near-term trend of the pair remains bullish as it holds above the 20-day Exponential Moving Average (EMA), which trades near 87.63.
The 14-day Relative Strength Index (RSI) stabilizes above 60.00, suggesting that a fresh bullish momentum has come into effect.
Looking down, the 20-day will act as key support for the major. On the upside, the pair has entered uncharted territory. The round figure of 89.00 would be the key hurdle for the pair.
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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