Indian Rupee trades higher amid US-China trade tensions, rising Fed dovish bets | FXStreet
The Indian Rupee (INR) trades higher against the US Dollar (USD) on Friday. The USD/INR pair slides to near 87.80 as the US Dollar faces a sharp selling pressure due to ongoing United States (US)-China trade frictions and firm expectations that the Federal Reserve (Fed) will cut interest rates two more times this year.
On Friday, the US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, extends its losing streak for the fourth trading day, trading 0.2% lower to near 98.15 during the Asian session.
Trade tensions between the US and China stemmed after the White House announced additional 100% tariffs on imports from Beijing in response to its rising export controls on rare earths and magnets. The impact of China’s measures towards restricting exports of rare earth minerals is seen across the globe, as leaders from other nations are also criticizing Beijing’s increasing control.
On Thursday, United Kingdom (UK) Chancellor of the Exchequer Rachel Reeves also denounced China’s decision on rate earths. “China’s decision on rare earths is wrong, dangerous for the world economy, and I welcome a greater G7 focus on where we get critical minerals from,” Reeves said.
Meanwhile, China’s Commerce Ministry has stated that Washington’s interpretation of Beijing’s rare earth export control measures is seriously “distorted and exaggerated”, Reuters reported. The ministry clarified that the demand for an export license is merely a regulatory measure, and not a ban on export of critical minerals.
Daily digest market movers: Fed’s Waller supports need to return to neutral rate
- The Indian Rupee has broadly strengthened against its peers amid growing expectations that the US and India could reach a trade deal soon, and cooling selling pressure by overseas investors in the Indian stock market.
- The speculation over the US-India reaching a consensus soon bolstered after President Donald Trump announced that India is ready to halt their oil purchases from Russia. Trade tensions between the US and India stemmed after Washington imposed an additional 25% tariff as a penalty on imports from New Delhi for buying oil from Russia, citing that funds flowing into Moscow are helping it to continue the war against Ukraine.
- In response, India’s Ministry of External Affairs (MEA) has diplomatically answered that New Delhi’s priority is to safeguard the interests of the Indian consumer in a volatile energy scenario and confirmed that the current US administration has shown interest in deepening energy cooperation with us, NDTV reported.
- Signs of improving US-India trade tensions are favorable for the Indian Rupee. Meanwhile, Foreign Institutional Investors (FIIs) turned out to be buyers on Thursday in Indian equity markets, and bought shares worth Rs. 997.29 crores.
- In the US, growing expectations for more interest rate cuts by the Fed have been a major drag on the US Dollar. According to the CME FedWatch tool, traders have fully priced in a 50-basis-point (bps) reduction in interest rates in the remaining year and see a 19.6% chance that the Fed could cut borrowing rates by 75 bps.
- On Thursday, Fed Governor Christopher Waller stated that labor market weakness supports the need to move the central bank towards a neutral rate, which is 100-125 bps lower than the current Fed Funds Rate.
Technical Analysis: USD/INR stays below 20-day EMA
The USD/INR pair slumps to near 87.80 at open on Friday. The near-term trend of the pair has turned bearish as it has stabilized below the 20-day Exponential Moving Average (EMA), which is around 88.54.
The 14-day Relative Strength Index (RSI) falls below 40.00. A fresh bearish momentum if the RSI holds below that level.
Looking down, the August 21 low of 87.07 will act as key support for the pair. On the upside, the 20-day EMA will be a key barrier.
US-China Trade War FAQs
Generally speaking, a trade war is an economic conflict between two or more countries due to extreme protectionism on one end. It implies the creation of trade barriers, such as tariffs, which result in counter-barriers, escalating import costs, and hence the cost of living.
An economic conflict between the United States (US) and China began early in 2018, when President Donald Trump set trade barriers on China, claiming unfair commercial practices and intellectual property theft from the Asian giant. China took retaliatory action, imposing tariffs on multiple US goods, such as automobiles and soybeans. Tensions escalated until the two countries signed the US-China Phase One trade deal in January 2020. The agreement required structural reforms and other changes to China’s economic and trade regime and pretended to restore stability and trust between the two nations. However, the Coronavirus pandemic took the focus out of the conflict. Yet, it is worth mentioning that President Joe Biden, who took office after Trump, kept tariffs in place and even added some additional levies.
The return of Donald Trump to the White House as the 47th US President has sparked a fresh wave of tensions between the two countries. During the 2024 election campaign, Trump pledged to impose 60% tariffs on China once he returned to office, which he did on January 20, 2025. With Trump back, the US-China trade war is meant to resume where it was left, with tit-for-tat policies affecting the global economic landscape amid disruptions in global supply chains, resulting in a reduction in spending, particularly investment, and directly feeding into the Consumer Price Index inflation.