USD/INR jumps at open as Trump threatens 10% Anti-American policies tariff
- The Indian Rupee slides against US Dollar as Trump threatens to impose 10% on countries supporting BRICS’ anti-American policies.
- Trump prepares to send letters, outlining tariff rates, to nations that fail to secure trade deal during the tariff deadline.
- Traders pare Fed dovish bets on upbeat US NFP data.
The Indian Rupee starts the week on a negative note against the US Dollar (USD). The USD/INR pair advances to near 85.80 at open as United States (US) President Donald Trump threatens in a post on Truth.Social that he will impose additional 10% tariffs on countries that align with BRICS’s anti-American policies, with the specification that there would be no expectations.
"Any Country aligning themselves with the Anti-American policies of BRICS, will be charged an ADDITIONAL 10% Tariff. There will be no exceptions to this policy. Thank you for your attention to this matter!" Trump wrote.
This came after BRICS nations condemned unilateral tariffs and non-tariff barriers that are disturbing global trade and are inconsistent with World Trade Organization (WTO) rules in the Rio declaration. However, nations didn’t specify the US while expressing concerns over unilateral trade barriers.
India, being a founding member of BRICS, is not immune to new Trump tariffs’ threats and could see some disruption in ongoing trade negotiations with the US.
No confirmation about striking a deal between the US and India ahead of the reciprocal tariff deadline on Wednesday, even as Washington expressed confidence on July 3 that it could reach a deal with New Delhi within 48 hours, which was supposed to be July 5, has raised concerns over the finalization of the trade pact.
A report from the NDTV showed on Thursday that India and the US can announce a trade agreement within "48 hours".
Daily digest market movers: Indian Rupee underperforms US Dollar
- The Indian Rupee weakens against the US Dollar on Monday. The US Dollar trades broadly stable as investors await news alerts about how much US President Trump will impose additional tariffs on those nations that fail to close a trade deal before the deadline.
- During the press time, the US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, trades calmly near 97.00, slightly higher from a fresh multi-year low of 96.40 posted last week.
- Over the weekend, Donald Trump stated that he will release letters outlining tariffs for 12 countries on Monday. Trump said the first batch of letters outlining the tariff levels they would face on exports to the United States would be sent to 12 countries on Monday, Reuters reported.
- Investors should brace for significant volatility if the US sends letters to any of its leading trading partners. So far, Trump has announced bilateral deals with the United Kingdom (UK) and Vietnam and a limited trade pact with China. Given that Washington has not announced any deal with the Eurozone, Japan, Canada, and Mexico, tariff letters to them will be unfavorable for the US Dollar and US assets.
· Meanwhile, the passage of Trump’s “Big Beautiful Bill” has prompted fiscal risks for the US Dollar as it is expected to add over $3 trillion to the already ballooning nation’s debt over a decade. However, US equities have performed strongly over Trump’s bill clearance, assuming that higher liquidity with households will boost consumption.
· On the monetary policy front, upbeat US nonfarm Payrolls (NFP) data for June has forced traders to pare bets supporting the Federal Reserve (Fed) to cut interest rates in the policy meeting later this month. According to the CME FedWatch tool, the probability of the Fed cutting borrowing rates in July has diminished to 4.7% from 18.6% seen a week ago.
Technical Analysis: USD/INR recovers to near 85.80
The USD/INR pair recovers sharply to near 85.80 on Monday from an over-monthly low of 85.30 posted the previous week. However, the near-term trend of the pair remains bearish as it stays below the 20-day Exponential Moving Average (EMA), which trades around 85.90.
The 14-day Relative Strength Index (RSI) stays below 50.00, indicating that the trend is on the downside.
Looking down, the May 27 low of 85.10 will act as key support for the major. On the upside, Wednesday’s high of 86.13 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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