USD/INR holds steady as US trade court blocks Trump's 'Liberation Day' tariffs
- Indian Rupee trades flat in Thursday’s Asian session.
- The month-end US Dollar bid and Trump’s headline weigh on the INR.
- The second estimate of the US Q1 GDP report will be in the spotlight later on Thursday.
The Indian Rupee (INR) flat lines on Thursday. The month-end US Dollar (USD) demand and the headline surrounding the US court blocking US President Donald Trump's tariffs provide some support to the US Dollar (USD) and weigh on the Indian currency. Additionally, a rise in crude oil prices could exert some selling pressure on the Indian currency, as India is the world's third-largest oil consumer.
Nonetheless, concerns over US trade and fiscal policies could undermine investor confidence in US assets and prompt the “Sell America” theme”. This might drag the USD lower in the near term.
Traders await the release of the second estimate of the US Gross Domestic Product (GDP) report for the first quarter (Q1), which will take center stage later on Thursday. Also, the weekly Initial Jobless Claims and Pending Home Sales will be released. The Federal Reserve officials are scheduled to speak later in the day, including Thomas Barkin, Austan Goolsbee, Adriana Kugler, and Mary Daly.
Indian Rupee steadies after US court blocks Trump's tariffs
- India’s Industrial Output grew 2.7% YoY in April, compared to a rise of 3.0% in May, according to the Release and Implementation Program Statistics Department. The figure came in better than the expectation of 2.0%.
- India’s Manufacturing Output rose 3.4% YoY in April versus 4.0% prior (revised from 3.0%), stronger than the 3.0% expected.
- A US federal court on Wednesday blocked US President Donald Trump's "Liberation Day" tariffs from going into effect. A federal trade court ruled Trump didn't have the authority to impose across-the-board duties on imports from nations that sell more to the US than they buy, per Reuters.
- The minutes of the Federal Open Market Committee’s meeting that ended May 7 said that the Federal Reserve (Fed) officials broadly agreed that heightened economic uncertainty justified their patient approach to interest-rate adjustments.
- Fed officials highlighted the need to keep interest rates on hold for some time, as policy shifts in the US cloud the economic outlook.
USD/INR remains bearish as sellers defend the 100-day EMA resistance
The Indian Rupee trades on a flat note on the day. The bearish outlook of the USD/INR pair prevails, characterized by the price holding below the key 100-day Exponential Moving Average (EMA) on the daily chart. The 14-day Relative Strength Index (RSI) hovers around the midline, suggesting that further consolidation cannot be ruled out.
The first downside target to watch is 84.78, the low of May 26. A clean break below the mentioned level could open the door for a drop toward 84.61, the low of May 12. The next contention level is located at 84.00, the psychological level and the lower limit of the trend channel.
On the flip side, the crucial resistance level is seen at 85.55, the 100-day EMA. Any follow-through buying could set the stage for another push toward 85.75, the upper boundary of the trend channel, en route to 85.10, the high of May 22.
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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