USD/INR ticks down on continued Indian Rupee’s outperformance
- The Indian Rupee continues to trade firmly against the US Dollar on the US-India trade truce euphoria.
- Investors expect the RBI to keep the Repo Rate steady at 5.25%.
- The Fed is unlikely to cut interest rates in the March and April policy meetings.
The Indian Rupee (INR) ticks up at open against the US Dollar (USD) on Thursday. The USD/INR pair trades subduedly around 90.50 as the Indian Rupee holds United States (US)-India trade truce-driven gains.
On Monday, US President Donald Trump and Indian Prime Minister (PM) Narendra Modi confirmed tariff reduction on New Delhi’s exports to Washington to 18% from 50%, which included punitive tariffs for buying oil from Russia.
The event led to a strong rally in the Indian stock market and the Indian Rupee, alongside significant buying by overseas investors. On Wednesday, the net investment by Foreign Institutional Investors (FIIs) in the cash segment of the Indian stock market was 5,236.28 crore.
However, the US-India trade truce turning out to be insignificant for FIIs' return to the Dalal Street, given their nominal investment on Wednesday. Foreign investors poured mere Rs. 29.79 crore worth of investment in the Indian equity market the previous day.
The interest of foreign investors remaining subdued toward the Indian equity market, even after the confirmation of tariff truce between both nations could be unfavorable for the Indian Rupee in the longer term. The Indian currency remained the top Asian underperformer in 2025 due to trade tensions between the US and India.
Daily Digest Market Movers: Trump expects Warsh to reduce interest rates after returning to Fed
- The Indian Rupee trades marginally higher against the US Dollar, even as the latter trades broadly firm on expectations that the Federal Reserve (Fed) will not cut interest rates in the near term.
- At the time of writing, the US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, trades 0.15% higher to near 97.80, the highest level seen in over a week.
- According to the CME FedWatch tool, traders seem confident that the Fed will leave interest rates unchanged in the range of 3.50%-3.75% in its policy meetings in March and April.
- Federal Reserve Governor Lisa Cook said in an event at the Economic Club in Miami on Wednesday that it is prudent to sit back and the leave policy rates steady as long as inflation resumes progress toward the central bank’s 2% target.
- Meanwhile, expectations from nominated new Fed Chairman Kevin Warsh that interest rate cuts won’t be aggressive in his tenure are also acting as key drag on dovish central bank prospects. Warsh is known for his preference for a smaller balance sheet and a firmer US Dollar from his previous term as Governor at the Fed.
- Contrary to market expectations, United States (US) President Donald Trump is confident that Warsh will lower interest rates after returning to the Fed. “I mean, if he came in and said, ’I want to raise them [interest rates]’ he would not have gotten the job," Trump said in an interview with NBC on Wednesday when asked whether he expects Warsh to lower borrowing rates.
- On the economic data front, ADP Employment Change data for January has come in below expectations, while the ISM Services Purchasing Managers’ Index (PMI) expanded at a steady pace. The ADP reported that the private sector created 22K fresh jobs, lower than estimates of 48K and the prior reading of 37K. The Services PMI remained steady at 53.8, higher than the consensus of 53.5.
- In India, investors await the Reserve Bank of India’s (RBI) monetary policy announcement on Friday in which it is expected to leave its Repo Rate steady at 5.25% as the impact of recent interest rate cuts is yet to be passed through to the economy.
- However, the Indian central bank is seen keeping the door open for interest rate cuts in upcoming policy meetings as India’s retail Consumer Price Index (CPI) has remained well below the central bank’s tolerance band of 2%-6% for several months.
Technical Analysis: USD/INR stays below 20-day EMA
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In the daily chart, USD/INR trades at 90.5740. The pair holds below the 20-EMA, which has rolled over, keeping the near-term bias bearish. The downward slope of the average underscores fading upside pressure. RSI at 44.93 sits below its midline, confirming weak momentum. A rebound would face initial resistance at the 20-EMA at 91.0001.
Bearish traction persists while price remains under the declining average and rallies are capped by supply. If the RSI fails to reclaim 50 and momentum stays soft, the pair could extend the pullback. A decisive close above the moving average would shift bias toward stabilization and a recovery phase.
(The technical analysis of this story was written with the help of an AI tool.)
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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