USD/INR declines as US Dollar refreshes six-week low
- Indian Rupee advances against US Dollar at open to near 88.10 as soft US NFP data continue to exert pressure on the Greenback.
- Investors await the key US NFP benchmark revision report for the year ending March 2025.
- FIIs continue to pare stakes in Indian stock markets.
The Indian Rupee (INR) opens on a positive note against the US Dollar (USD) on Tuesday. The USD/INR pair slides to near 88.10 as the US Dollar extends its downside, following dismal United States (US) official job data for August.
At the time of writing, the US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, posts a fresh over six-week low around 97.30.
The US Dollar is facing selling pressure as soft US Nonfarm Payrolls (NFP) data has almost locked in an interest rate cut by the Federal Reserve (Fed) in the policy meeting next week. The NFP report showed on Friday that the economy added 22K fresh workers, the worst reading seen since January 2021.
According to the CME FedWatch tool, traders see an 11.6% chance that the Fed will cut interest rates by 50 basis points (bps) to 3.75%-4.00%, while the rest point a standard 25-bps interest rate reduction.
In Tuesday’s session, investors will pay close attention to the NFP benchmark revision report for employment data through March 2025. The report will show preliminary revision for payrolls added in the 12-month period through March 2025, before the final benchmark revision is reported within the employment report of February 2026.
The impact of the employment revision report will be significant on market expectations for the Fed’s monetary policy outlook. In 2024, the Fed delivered a 50-bps interest rate cut in September after the payrolls revision report showed that the economy created 818K fewer jobs than had been anticipated earlier.
Daily digest market movers: US-India trade tensions continue to weigh on Indian Rupee
- The Indian Rupee trades higher against the US Dollar on Tuesday. However, the outlook of the Indian Rupee remains uncertain due to the continuous outflow of overseas funds from the Indian stock market in the wake of trade tensions between India and the United States (US).
- The data showed on September 8 that Foreign Institutional Investors (FIIs) sold Indian equities worth Rs. 2,169.35 crores. In six trading days of September, FIIs have remained sellers in the cash market and have pared stake worth Rs. 7,836.25 crores cumulatively.
- Meanwhile, the announcement of the rationalization of Goods and Services Tax (GST) structure by the Indian government to boost domestic consumption appears to be failing to offset the impact of US-India trade tensions.
- A report from ING has signaled a warning that the direct impact of US President Donald Trump’s 50% tariffs might look moderate on paper, as Indian exports to the US in FY2025 represented less than 2% of Gross Domestic Product (GDP), but its second-round impact would be significant on employment and consumption.
- This week, investors will focus on the US and India’s Consumer Price Index (CPI) data for August, which will be released on Thursday and Friday, respectively. Inflationary pressures in both nations are expected to have grown at a faster pace.
Technical Analysis: USD/INR continues to hold 88.00
The USD/INR pair trades lower to near 88.10 in the opening session on Tuesday. However, the near-term trend of the pair remains bullish as it holds above the 20-day Exponential Moving Average (EMA), which trades near 87.82.
The 14-day Relative Strength Index (RSI) falls to near 60.00. A fresh bullish momentum would emerge if the RSI holds above that level.
Looking down, the 20-day will act as key support for the major. On the upside, 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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