USD/INR opens lower at the start of holiday-shortened week in India
- The Indian Rupee rises against the US Dollar, with the USD/INR declining to near 88.00.
- Indian currency markets will remain closed on Tuesday and Wednesday.
- US President Trump warns that tariffs will remain on Indian imports unless they halt buying oil from Russia.
The Indian Rupee (INR) opens on a slightly positive note against the US Dollar (USD) at the start of the holiday-shortened week on Monday. Indian currency markets will remain closed on Tuesday and Wednesday on account of Diwali Laxmi Pujan and Balipratipada, respectively.
The USD/INR drops to near 88.00 even as United States (US) President Donald Trump has threatened that massive tariffs on imports from India will remain in effect unless the nation halts buying oil from Russia.
US President Trump reiterated tariff threats over the weekend after reporters raised questions about the credibility of his statement that India will halt purchasing seaborne crude oil from Russia. Last week, the Indian ministry denied Trump’s claim that Prime Minister (PM) Narendra Modi had assured him that New Delhi would halt buying oil from Moscow.
India’s massive oil purchases from Russia have been a major reason behind trade tensions between New Delhi and Washington for the past few months. The Washington raised tariffs on imports from New Delhi to 50%, which resulted in a significant depreciation in the Indian Rupee and a massive outflow of foreign funds from the Indian stock market.
However, Foreign Institutional Investors (FIIs) have reduced selling in Indian equities this month. So far in October, FIIs have sold shares worth Rs. 586.76 crores, which is way lower in comparison with the sell-off seen in the July-September period.
Daily digest market movers: Easing US-China trade tensions may likely support US Dollar
- A slight corrective move in the US Dollar during the Asian trading session after a decent opening has also continued to a positive opening of the USD/INR pair. At the time of writing, the US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, drops to near 98.45.
- Broadly, the US Dollar strives to gain ground as trade tensions between the US and China have eased, following comments from US President Trump that the additional 100% tariffs announced on imports from Beijing to Washington won’t be sustainable.
- “High tariffs were not sustainable, though it could stand,” Trump said, Fox Business reported. He signaled that his meeting scheduled with Chinese leader Xi Jinping at the Asia-Pacific Economic Cooperation meeting in South Korea later this month is on track and expected the meeting to be favorable for both nations. “I think we’re going to be fine with China, but we have to have a fair deal. It’s got to be fair,” Trump said.
- Before the Trump-Xi meeting, US Treasury Secretary Scott Bessent is scheduled to meet his Chinese counterpart. Vice Premier He Lifeng, later this week. Both are expected to discuss the recently announced export controls on rare earth minerals by Beijing. Ahead of the meeting, US President Trump has already clarified that he doesn’t want China to play “rare earth game with us”.
- On the domestic front, investors await the delayed Consumer Price Index (CPI) data for September and the preliminary S&P Global Purchasing Managers’ Index (PMI) data for October, which will be released on Friday.
- Meanwhile, traders remain confident that the Federal Reserve (Fed) will cut interest rates by more than 50 basis points (bps) in the remaining year, according to the CME FedWatch tool.
Technical Analysis: USD/INR drops to near 88.00
USD/INR opens lower at the start of the week, dropping to near 88.00. The 50-day Exponential Moving Average (EMA) near 88.13 is acting as a key barrier for the USD/INR bulls.
The 14-day Relative Strength Index (RSI) falls below 40.00. A fresh bearish momentum could emerge as the RSI holds below that level.
Looking down, the August 21 low of 87.07 will act as a key support for the pair. On the upside, the 20-day EMA 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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