USD/INR refreshes four-week high as Indian Rupee underperforms
- The Indian Rupee slumps against the US Dollar as the former faces multiple headwinds.
- Subdued India Inc. Q1 earnings growth, FIIs’ selling, and US-India trade deal uncertainty have weighed on the Indian Rupee.
- The US Dollar trades calmly while traders pare Fed dovish bets.
The Indian Rupee (INR) starts the week on a negative note against the US Dollar (USD). The USD/INR jumps to near 86.50 at open as the Indian Rupee underperforms due to multiple headwinds such as: no confirmation of a trade agreement between the United States (US) and India, President Donald Trump reiterating threat of tariffs on BRICS, subdued start of Q1FY26 earnings season, and significant selling by Foreign Institutional Investors (FIIs) so far this month.
On several occasions, US President Trump has stated that Washington is close to finalizing a trade deal with India. Last week, India’s Chief Trade Negotiator Rajesh Agrawal-led team also fled Washington for the next round of trade talks. The delay in trade confirmation by both economies has prompted anxiety among investors.
Meanwhile, Trump has threatened to impose 10% tariffs on imports from BRICS nations for supporting what he called “anti-American” policies again on Friday. Trump emphasized the need to “preserve the US Dollar’s reserve status” and warned that Washington could not allow anyone to “play games with us”, Reuters reported.
On the domestic front, signs of a slowdown in early Q1 results trend have weighed on Indian bourses. So far, quarterly results from major banks have shown sluggish Net Interest Margins (NIMs) and moderate profit growth. Oil-to-telecom conglomerate Reliance has posted stellar earnings this quarter, but these were escalated by a one-off increase.
A moderate revenue growth posted by India Inc. so far appears to have led Foreign Portfolio Investors (FPIs) to sell significant holdings in July. FIIs bought RS. 374.4 crores worth of shares on Friday, but have sold Rs. 16,955.75 crores worth of shares cumulatively.
Daily digest market movers: Indian Rupee weakens due to multiple headwinds
- The Indian Rupee trades lower against the US Dollar in the opening session on Monday. The USD trades broadly stable, following a decline in traders’ bets supporting interest rate cuts by the Federal Reserve (Fed) in the monetary policy meeting in September.
- At the time of writing, the US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, trades calmly around 98.50, close to a four-week high of around 99.00.
- According to the CME FedWatch tool, the probability for the Fed to reduce interest rates in the September meeting has declined to 58.5% from almost 70% seen a month ago. Traders pare Fed dovish bets after the release of the United States (US) Consumer Price Index (CPI) data for June, which showed that prices of products that are largely imported have increased after the imposition of sectoral tariffs by President Donald Trump.
- Market experts have warned that inflationary pressures could accelerate further as Trump’s so-called “reciprocal tariffs” are yet to be filtered into the economy, which will become effective from August 1.
- Chicago Federal Reserve Bank President Austan Goolsbee has guided that the central bank would need to do more to assess the need for any adjustment in the current monetary policy stance, as a constant "drip-drip-" of new tariff announcements undercuts the idea that tariffs have only a “one-time impact” on prices, Reuters reported.
- This week, the Indian Rupee and the US Dollar will be influenced by the preliminary private Composite Purchasing Managers’ Index (PMI) data for July, which will be released on Thursday.
Technical Analysis: USD/INR jumps to near 86.50
USD/INR extends three-day winning streak and jumps to near 86.50 at open on Monday, the highest level seen in four weeks. The near-term trend of the pair is bullish as the 20-day Exponential Moving Average (EMA) slopes higher around 86.00.
The 14-day Relative Strength Index (RSI) jumps to near 60.00. A fresh bullish momentum would emerge if the RSI breaks above that level.
Looking down, the 50-day EMA near 85.85 will act as key support for the major. On the upside, the June 23 high near 87.00 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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