USD/INR jumps higher as Trump threatens tariffs on BRICS and pharmaceutical imports
- The Indian Rupee opened negatively against US Dollar as Trump reiterated 10% tariff threats on BRICS nations for de-dollarization practices.
- Trump threatens to impose 200% tariffs on pharmaceutical imports next year.
- Investors await the FOMC minutes for the June 17-18 policy meeting.
The Indian Rupee (INR) opens lower against the US Dollar (US) on Wednesday, sending the USD/INR higher to near 86.00. Investors were bracing for weakness in the Indian currency as the United States (US) President reiterated his threats to impose 10% tariffs on BRICS members for supporting anti-American policies.
On Tuesday, US President Trump stated while speaking to reporters that the BRICS nations will be charged an additional 10% tariffs for challenging the status of the US Dollar as the world’s reserve currency. "BRICS was set up to degenerate our [US] dollar and take it off as the standard," Trump said and added, "And that’s okay if they [BRICS] want to play that game, but I [Trump] can play that game too."
The development is unfavorable for the Indian currency at a time when India and the US are negotiating a trade pact in which the Asian giant vows to safeguard its agriculture and labor-intensive sectors from getting exposed to competition from US companies.
Another reason behind the increasing selling pressure on the Indian currency is the announcement from US President Trump at the White House cabinet meeting that he will impose 200% tariffs on pharmaceutical products. The headline is unfavorable for the Indian Rupee, given that India exports a chunk of its pharmaceutical output to the US.
"If they [companies from other nations] have to bring the pharmaceuticals into the country they’re going to be tariffed at a very, very high rate, like 200%. We’ll give them a certain period of time to get their act together," Trump said.
Daily digest market movers: Indian Rupee weakens against US Dollar
- Signs of decent strength in the US Dollar have pushed the USD/INR pair higher on Wednesday. The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, is near its weekly high around 97.80. The US Dollar exhibits strength as US President Trump has signaled more healthy trade talks with China soon.
- According to a report from Deccan Herald, US President Trump stated that he speaks often with Chinese leader XI Jinping and Beijing has been dealing fairly. “We're getting along with China’s President XI well. We speak often,” Trump said and added, “We have had a really good relationship with China lately and the nation has been very fair on our trade deal.” The scenario of improving trade relations between the US and China is favorable for the US Dollar and the entire globe as it reduces fears of Beijing dumping goods to other nations at lower rates.
- On Tuesday, US President Trump also announced 50% tariffs on imports of copper, a move that will boost its production domestically. This has led to a sharp increase in copper prices.
- Going forward, the major trigger for the US Dollar will be trade-related headlines by the White House. On Tuesday, Donald Trump said in a post on Truth.Social that he will unveil the current status of trade with a minimum of seven countries on Wednesday morning and more in the afternoon. However, he didn’t specify whether it would be a fresh tariff imposition on them or the signing of a trade agreement. According to comments from US Commerce Secretary Howard Lutnick in an interview with CNBC, Trump will reveal fresh tariff rates for them. “I expect 15-20 trade letters to go out over the next 2 days,” Lutnick said.
- On the domestic front, investors await the release of the Federal Open Market Committee (FOMC) minutes for the June 17-18 policy meeting, which will be published at 18:00 GMT. The Fed kept interest rates steady in the range of 4.25%-4.50% for the fourth straight meeting.
Technical Analysis: USD/INR aims to stabilize above 20-day EMA
The USD/INR pair gains to near 86.00 at open on Wednesday but stays inside Monday’s trading range. The pair tussles to stabilize above the 20-day Exponential Moving Average (EMA), which trades around 85.90. The near-term trend will turn bullish if the pair manages to do so.
The 14-day Relative Strength Index (RSI) rebounds to near 50.00. A fresh bullish momentum would emerge if the RSI breaks above 60.00.
Looking down, the May 27 low of 85.10 will act as key support for the major. On the upside, the June 24 low at 86.42 will be a critical hurdle for the pair.
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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