- The Indian Rupee edges lower in Wednesday’s Asian session.
- Trump is set to implement tariffs on US trading partners on Wednesday.
- The US March ADP Employment Change is due later on Wednesday.
The Indian Rupee (INR) softens on Wednesday. The local currency retreats after logging its best monthly rise in over six years, driven by a weaker Greenback and renewed foreign inflows into equities. Analysts expect the INR’s near-term outlook to depend on US President Donald Trump’s anticipated reciprocal tariff on major trading partners, set on Wednesday. Traders will assess how the levies may impact global trade and growth prospects.
Looking ahead, traders brace for US President Donald Trump’s announcement of reciprocal tariffs later on Wednesday. Also, the US March ADP Employment Change will be published. Remarks from Federal Reserve (Fed) officials will also be in focus throughout the week.
The Reserve Bank of India (RBI) will announce its interest rate decision next week. A Reuters poll of economists anticipates just one more rate cut in August, which would mark its shortest easing cycle on record. This, in turn, might exert further mild downward pressure on the Indian currency.
Indian Rupee seems vulnerable ahead of Trump’s tariff announcement
- In March, the rupee posted its best monthly performance in more than six years, bolstered by foreign portfolio and other inflows, coupled with a scaling back of bearish wagers.
- Overseas investors bought nearly $4 billion of Indian equities and bonds, a significant reversal from approximately $12 billion in outflows seen in January and February.
- “The rupee has benefited from a recent weakness in the dollar and the Reserve Bank of India allowing for a two-way movement, but key risks to India’s external sector balance continue to stem from the uncertainties on U.S. trade/tariff policies,” Kotak Institutional Equities said in a note.
- Trump said that he will impose “reciprocal tariffs” on Wednesday, suggesting that many countries with their own duties on US goods could suddenly face new trade barriers. The White House stated that Trump’s forthcoming tariffs will take effect right after they are unveiled on Wednesday.
- US Treasury Secretary Scott Bessent said late Tuesday that the amounts announced on Wednesday are the highest the tariffs will go. However, countries could then take steps to bring the tariffs down.
- The US ISM Manufacturing Purchasing Managers Index (PMI) declined to 49.0 in March from 50.3 in February. This figure came in below the market consensus of 49.5.
- Chicago Fed President Austan Goolsbee said late Tuesday that US hard data are strong, but soft data almost cratering. Goolsbee further stated that uncertainty is tainted with fear regarding inflation.
USD/INR’s bearish outlook remains intact below the 100-day EMA
The Indian Rupee trades weaker on the day. According to the daily chart, the USD/INR pair keeps the bearish vibe, with the price holding below the key 100-day Exponential Moving Average (EMA). The path of least resistance is to the downside as the 14-day Relative Strength Index (RSI) stands below the midline near 32.90.
The 85.00 psychological level acts as an initial support level for the pair. The additional downside filter to watch is 84.84, the low of December 19. The next bearish target is seen at 84.22, the low of November 25, 2024.
On the other hand, the key resistance level for USD/INR is located in the 85.90-86.00 zone, representing the 100-day EMA and round mark. Sustained upside momentum could pave the way to 86.48, the low of February 21, and then a rally to 87.00, the round figure.
Indian economy FAQs
The Indian economy has averaged a growth rate of 6.13% between 2006 and 2023, which makes it one of the fastest growing in the world. India’s high growth has attracted a lot of foreign investment. This includes Foreign Direct Investment (FDI) into physical projects and Foreign Indirect Investment (FII) by foreign funds into Indian financial markets. The greater the level of investment, the higher the demand for the Rupee (INR). Fluctuations in Dollar-demand from Indian importers also impact INR.
India has to import a great deal of its Oil and gasoline so the price of Oil can have a direct impact on the Rupee. Oil is mostly traded in US Dollars (USD) on international markets so if the price of Oil rises, aggregate demand for USD increases and Indian importers have to sell more Rupees to meet that demand, which is depreciative for the Rupee.
Inflation has a complex effect on the Rupee. Ultimately it indicates an increase in money supply which reduces the Rupee’s overall value. Yet if it rises above the Reserve Bank of India’s (RBI) 4% target, the RBI will raise interest rates to bring it down by reducing credit. Higher interest rates, especially real rates (the difference between interest rates and inflation) strengthen the Rupee. They make India a more profitable place for international investors to park their money. A fall in inflation can be supportive of the Rupee. At the same time lower interest rates can have a depreciatory effect on the Rupee.
India has run a trade deficit for most of its recent history, indicating its imports outweigh its exports. Since the majority of international trade takes place in US Dollars, there are times – due to seasonal demand or order glut – where the high volume of imports leads to significant US Dollar- demand. During these periods the Rupee can weaken as it is heavily sold to meet the demand for Dollars. When markets experience increased volatility, the demand for US Dollars can also shoot up with a similarly negative effect on the Rupee.
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.
