USD/INR opens higher despite US-India trade deal optimism
- The Indian Rupee falls to near 88.10 against the US Dollar even as US-India trade deal hopes have improved.
- The amount of foreign funds outflow seen so far this month is significantly lower than what was seen in the last three months.
- Cooling US inflation growth boosts speculation for more Fed interest rate cuts.
The Indian Rupee (INR) opens lower against the US Dollar (USD) at the start of the week. The USD/INR pair rises to near 88.10 even as hopes of the United States (US) and India reaching a trade deal have increased.
A report by Bloomberg showed on Friday that an Indian government official said that negotiators from both nations have resolved almost all issues and are in the final stage of discussing the legal language of the trade pact. “There has been convergence on most issues, and a deal is in sight,” the official said on condition of anonymity.
Meanwhile, Indian Commerce and Industry Minister Piyush Goyal stated in an event in Germany on Friday that New Delhi won’t deal in a rush. “We don’t do deals in a hurry, and we don’t do deals with deadlines, with a gun on our head,” Goyal said.
Trade relations between the US and India have been under stress for a few months since President Donald Trump raised tariffs on imports from New Delhi to 50%, criticizing India for buying Oil from Russia.
Meanwhile, signs of a slowdown in the outflow of foreign funds from the Indian stock market could support the Indian Rupee going forward. So far this month, Foreign Institutional Investors (FIIs) have sold shares worth Rs. 244.02 crores, against an average selling of Rs. 43,290.32 crores seen in the last three months.
Daily digest market movers: Investors expect Fed to cut interest rates on Wednesday
- The Indian Rupee struggles to outperform the US Dollar even as the latter trades flat in the opening trade on Monday. During the Asian session, the US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, trades flat near 99.00.
- The US Dollar flattens as the impact of the softer-than-expected US Consumer Price Index (CPI) data for September, released on Friday, has been offset by receding trade tensions between the US and China.
- The US CPI report showed that the headline and the core inflation – which excludes volatile food and energy items – rose at a moderate pace of 0.3% and 0.2% on a monthly basis. On year, the headline CPI grew by 3%, slower than estimates of 3.1% but faster than the prior reading of 2.9%. In the same period, the core CPI decelerated to 3% from expectations and the previous release of 3.1%.
- Soft US inflation data has given room to the Federal Reserve (Fed) to focus more on supporting slower job growth. Meanwhile, traders are increasingly confident that the Fed will cut interest rates by 25 basis points (bps) in the monetary policy announcement on Wednesday, according to the CME FedWatch tool.
- Meanwhile, easing US-China trade frictions have offered some relief to the US Dollar. US Treasury Secretary Scott Bessent has expressed confidence that 100% additional tariff threats by Washington on Beijing and rare earth export controls by them would be deferred, after meeting with Chinese Premier He Lifeng at the sidelines of the Association of Southeast Asian Nations (ASEAN) summit in Malaysia over the weekend.
- “No, I’m not, and I’m also anticipating that we will get some kind of a deferral on the rare earth export controls that the Chinese had discussed,” Bessent said in an interview with NBC’s "Meet the Press" program after he was asked whether the White House would proceed with 100% additional tariffs on China.
Technical Analysis: USD/INR rises to near 88.10
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The USD/INR pair rises to near 88.10 at the start of the week. However, the near-term trend of the pair remains bearish as the 20-day Exponential Moving Average (EMA) slopes downwards around 88.12.
The 14-day Relative Strength Index (RSI) wobbles around 40.00. A fresh bearish momentum would emerge if the RSI falls below that level.
Looking down, the August 21 low of 87.07 will act as key support for the pair. On the upside, the September 23 low around 88.48 will be a key barrier.
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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