USD/INR opens lower on US-India trade deal optimism
- The Indian Rupee edges higher against the US Dollar as US President Trump signals optimism on the US-India trade agreement.
- FIIs turned out to be net buyers on September 9 in the cash segment of the Indian equity market.
- Investors await key US PPI and CPI data for August.
The Indian Rupee (INR) opens on a positive note against the US Dollar (USD) on Wednesday. The USD/INR pair corrects to near as the Indian Rupee gains on hopes that the United States (US) and India will resolve their trade tensions and reach a trade pact soon.
The optimism over US-India trade agreement has stemmed from positive comments by President Donald Trump on Truth.Social, stating that both nations are continuously working on addressing trade barriers, and he will meet Indian Prime Minister Narendra Modi soon.
“I am pleased to announce that India and the US are continuing negotiations to address the Trade Barriers between our two Nations. I look forward to speaking with my very good friend, Prime Minister Modi, in the upcoming weeks. I feel certain that there will be no difficulty in coming to a successful conclusion for both of our Great Countries!” Trump wrote on Truth.Social.
In response, India’s PM Modi has also welcomed Trump’s positive commentary on US-India trade in a post on Twitter, which is now X. “India and the US are close friends and natural partners. I am confident that our trade negotiations will pave the way for unlocking the limitless potential of the India-US partnership. Our teams are working to conclude these discussions at the earliest. I am also looking forward to speaking with President Trump. We will work together to secure a brighter, more prosperous future for both our people,” Modi wrote.
Trade relations between the US and India were going through a rough phase as Washington increased tariffs on imports from New Delhi to 50% in August for buying Oil from Russia, which they called the money from India is funding Moscow for continuing the war in Ukraine.
Meanwhile, overseas investors have also turned out as buyers in the cash segment of the Indian stock market on Tuesday after remaining sellers in the initial six trading days of September. On Tuesday, Foreign Institutional Investors (FIIs) bought equities worth Rs. 2,050.46 crores in the Indian equity market. The impact of the US-India trade deal optimism has also been cheered by Indian bourses, which have opened on a gap-up note. Nifty50 trades 0.56% up around 25,000,
Daily digest market movers: Investors await key US PPI and CPI data
- The Indian Rupee trades higher against the US Dollar, even as the US Dollar Index (DXY) has stabilized after posting a fresh six-week low around 97.25.
- The US Dollar gains temporary ground despite the Nonfarm Payrolls (NFP) benchmark revision report for 12 months ending March showing that the economy created 911K fewer jobs than had been anticipated earlier. A sharp downward revision suggests that labor market conditions were deteriorating even before the announcement of reciprocal and sectoral tariffs by US President Donald Trump.
- Meanwhile, Federal Open Market Committee (FOMC) members had already warned of escalating downside risks to the labor market and argued in favor of loosening monetary policy restrictiveness to support the same.
- Going forward, investors will focus on the US Producer Price Index (PPI) and the Consumer Price Index (CPI) data for August, which will be released on Wednesday and Thursday, respectively. Investors will pay close attention to the producer and consumer inflation data to get cues about the impact of tariffs on price pressures. However, a majority of FOMC members, including Jerome Powell, have already stated that the tariff-driven inflation doesn’t appear to be persistent.
- The inflation will influence market expectations for the size of interest rate cut by the Federal Reserve (Fed) in its monetary policy meeting next week, as traders are certain that the central bank will resume the monetary easing campaign.
- According to the CME FedWatch tool, traders see an 8.4% chance that the Fed will cut interest rates by 50 basis points (bps) to 3.75%-4.00%, while the rest point a standard 25-bps interest rate reduction.
- Economists expect the monthly headline and core PPI to have grown at a moderate pace of 0.3%. The annualized headline PPI is estimated to have risen steadily by 3.3%. The core PPI is expected to have grown at an annualized pace of 3.5%, slower than 3.7% in July.
Technical Analysis: USD/INR stays above 20-day EMA
The USD/INR pair falls slightly to near 88.25 on Wednesday. However, the near-term trend of the pair remains bullish as it holds above the 20-day Exponential Moving Average (EMA), which trades near 87.85.
The 14-day Relative Strength Index (RSI) falls to near 60.00. A fresh bullish momentum would emerge if the RSI holds above that level.
Looking down, the 20-day will act as key support for the major. On the upside, the round figure of 89.00 would be the key 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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