USD/INR softens ahead of Indian/US PMI releases
- Indian Rupee edges higher in Wednesday’s Asian session.
- A softer US dollar and foreign inflows could support the INR, but higher crude oil prices might cap its upside.
- India’s May HSBC Composite and Services PMI and US ISM Services PMI data will be the highlights on Wednesday.
The Indian Rupee (INR) gains ground on Wednesday. The weaker US Dollar (USD) after the downbeat economic data supports the local currency. Analysts from BofA Securities said that Indian markets will likely be among the top three in Asia to attract foreign inflows once tariff-related uncertainties ease. This, in turn, might boost the Indian currency.
Nonetheless, extended gains in crude oil prices might weigh on the local currency. It’s worth noting that India is the world's third-largest oil consumer, and higher crude oil prices tend to have a negative impact on the INR value.
India’s HSBC Composite and Services Purchasing Managers Index (PMI) reports for May are due later on Wednesday, along with the US ISM Services PMI. Traders await the Reserve Bank of India (RBI) interest rate decision on Friday, which is expected to deliver a third straight 25 basis points (bps) rate cut. On the US docket, the US May employment report will take center stage.
Indian Rupee gains traction amid tariff uncertainty
- India's economy is projected to grow by 6.3% in 2025-26 and 6.4% in 2026-27, according to the Organisation for Economic Cooperation and Development (OECD).
- "India within Asia should be one of the best markets for investments as they have a lot of drivers for growth which other markets do not have," said David Hauner, head of global emerging markets fixed income strategy at BofA Securities.
- The number of job openings on the last business day of April stood at 7.39 million versus 7.2 million prior, the US Bureau of Labor Statistics (BLS) reported in the Job Openings and Labor Turnover Survey (JOLTS) on Tuesday. This figure came in above the market expectation of 7.1 million.
- Fed Board of Governors member Lisa D. Cook said on Tuesday that although the US economy appears to be in a healthy position for the time being, the Trump administration's trade policies remain the biggest economic threat to stability.
- Chicago Fed President Austan Goolsbee noted that the US central bank will have to wait and see if tariffs have a big or small impact on the economy.
USD/INR could resume upside above the key 100-day EMA
The Indian Rupee strengthens on the day. The USD/INR pair stands around the key 100-day Exponential Moving Average (EMA) on the daily chart. The pair could resume its upside if the price decisively crosses above the 100-day EMA. Meanwhile, the 14-day Relative Strength Index (RSI) is located above the midline near 55.0, suggesting that further upside looks favorable in the near term.
The first upside barrier for USD/INR emerges at 86.10, the high of May 22. Any follow-through buying above this level could retest 86.71, the high of April 9, en route to 87.30, the high of March 12.
On the flip side, the initial support level is seen at 85.30, the low of June 3. Bearish candlesticks and downside momentum could drag the pair lower to 85.04, the low of May 27. Further south, the next contention level to watch is 84.61, the low of May 12.
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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