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USD/INR rises amid renewed US Dollar demand

  • The Indian Rupee trades in negative territory in Thursday’s early European session. 
  • The attacks on Kashmir created a negative sentiment, weighing on the INR. 
  • The US weekly Initial Jobless Claims will be published later on Thursday. 

The Indian Rupee (INR) faces some selling pressure on Thursday as terrorist attacks in Kashmir, India, weighed on sentiment. Furthermore, rising crude oil prices undermine the Indian currency, as India is the world’s third-largest oil consumer. 

However, the weaker US Dollar might help limit the INR’s losses. Investors will keep an eye on the US weekly Initial Jobless Claims due later on Thursday. Also, the Chicago Fed National Activity Index, Durable Goods Orders, and Existing Home Sales are due later on Thursday. 

Indian Rupee softens as risk sentiment sours

  • Late Wednesday, US President Donald Trump’s administration stated that it has spoken to 90 countries regarding tariffs already. The administration noted that the US will set tariffs for China over the next two to three weeks, and it depends on China how soon tariffs can come down.
  • At least 28 people were killed and many wounded on Tuesday when terrorists opened fire in a picturesque meadow near the resort town of Pahalgam in J&K, marking the deadliest attack since 2019.
  • India has vowed to retaliate against the terror attack in the northern Indian region of Jammu and Kashmir. The US, China, and other nations also strongly condemned the attack on Wednesday.
  • The HSBC India Manufacturing Purchasing Managers Index (PMI) improved to 58.4 in April from 58.1 in March. The Indian Services PMI rose to 59.1 in April versus 58.5 prior. Finally, the Composite PMI climbed to 60.0 in April from 59.5 in March.
  • “New export orders accelerated sharply, likely buoyed by the 90-day pause in the implementation of tariffs. As a result, output and employment grew, for both, manufacturers and service providers. Cost inflation was in line with March levels, but prices charged rose a tad faster, leading to improved margins,” said Pranjul Bhandari, Chief India Economist at HSBC.
  • A preliminary reading of US S&P Global’s Composite PMI fell to 51.2 in April from 53.5 in March. Meanwhile, the Manufacturing PMI rose to 50.7 in April from the previous reading of 50.2, better than the estimation of 49.4. The Services PMI eased to 51.4 in April versus 54.4 prior, below the market consensus of 52.8.  
  • According to the Federal Reserve’s (Fed) Beige Book report on Wednesday, businesses dealing with the early stages of Trump’s tariffs are looking for ways to pass increasing costs onto consumers. 
  • Federal Reserve Bank of Cleveland President Beth Hammack said on Wednesday that conditions still support ongoing reductions in the central bank’s balance sheet. 

USD/INR’s bearish bias holds despite intraday gains

The Indian Rupee weakens on the day. However, in the longer term, the bearish outlook of the USD/INR pair remains intact as the price is below the key 100-day Exponential Moving Average (EMA) on the daily timeframe. The downward momentum is reinforced by the 14-day Relative Strength Index (RSI), which stands below the midline near 44.35.

The initial support level for USD/INR is located at 84.85, the lower limit of the descending trend channel. Extended losses could expose 84.22, the low of November 25, 2024. The next downside target is seen at 84.08, the low of November 6, 2024. 

In the bullish case, the immediate resistance level for the pair emerges at 85.85,  the 100-day EMA. Further north, the next hurdle to watch is 86.45, the upper boundary of the trend channel. 

RBI FAQs

The role of the Reserve Bank of India (RBI), in its own words, is “..to maintain price stability while keeping in mind the objective of growth.” This involves maintaining the inflation rate at a stable 4% level primarily using the tool of interest rates. The RBI also maintains the exchange rate at a level that will not cause excess volatility and problems for exporters and importers, since India’s economy is heavily reliant on foreign trade, especially Oil.

The RBI formally meets at six bi-monthly meetings a year to discuss its monetary policy and, if necessary, adjust interest rates. When inflation is too high (above its 4% target), the RBI will normally raise interest rates to deter borrowing and spending, which can support the Rupee (INR). If inflation falls too far below target, the RBI might cut rates to encourage more lending, which can be negative for INR.

Due to the importance of trade to the economy, the Reserve Bank of India (RBI) actively intervenes in FX markets to maintain the exchange rate within a limited range. It does this to ensure Indian importers and exporters are not exposed to unnecessary currency risk during periods of FX volatility. The RBI buys and sells Rupees in the spot market at key levels, and uses derivatives to hedge its positions.