- The Indian rupee edged higher in Tuesday’s early European session.
- Trade tariff fears, continued foreign outflows, and concerns about an Indian economic slowdown all weigh on the INR.
- Investors are expecting Fed Chair Jerome Powell’s semi-annual testimony on Tuesday.
The Indian Rupee (INR) recovered on Tuesday, posting its largest gain since November 2022, after plummeting to a new record low in the previous session. The Reserve Bank of India (RBI)’s robust intervention, US Dollar (USD) selling by exporters, and profit-booking by speculators all help to support the INR. The regular interventions have dragged on India’s foreign exchange reserves, which are approaching an 11-month low.
Nonetheless, the prospect of further US trade tariffs may cause losses in most regional currencies, including the INR. Investors are anxious about India’s economy, which appears to be slowing. The country’s GDP is expected to grow by 6.4% in the year to March, the slowest pace since the pandemic. Furthermore, the sustained portfolio withdrawals add to the local currency’s decline. The highlight of Tuesday’s proceedings will be Federal Reserve (Fed) Chair Jerome Powell’s semi-annual testimony.
Despite tariff warnings, the Indian rupee has rebounded.
- The Indian rupee has steadily decreased since Trump’s victory in the US elections last November, falling by approximately 4.5% since then.
- “We believe that the risks to the INR in the coming months are skewed toward relative weakness.” If the broad USD weakens, we anticipate that robust RBI FX purchases will buffer the downside in USD/INR,” Nomura wrote in a note.
- India has high tariffs that prevent imports, according to Trump’s senior economic adviser Kevin Hassett, who also stated that India’s Prime Minister will have a lot to discuss with Trump when they meet soon.
- India is proposing tariff reduction in at least a dozen sectors, including electronics, medical equipment, and chemicals, in order to boost US exports and fit with India’s local manufacturing goals.
- To address trade imbalances, India wants to increase energy product imports from the United States, which are expected to exceed $11 billion in the first eleven months of 2024.
- On Monday, US President Donald Trump increased his steel and aluminum tariffs to cover all imports, thus scrapping trade agreements with the European Union, the United Kingdom, Japan, and others.
USD/INR maintains its upward outlook, although bulls get cautious amid a shooting star.
The Indian rupee gets traction for the day. According to the daily chart, the USD/INR pair is trending positively because the price is above the crucial 100-day Exponential Moving Average (EMA), indicating that bulls are in control. However, the 14-day Relative Strength Index (RSI) enters overbought area over 70.00, potentially indicating a brief downturn or additional consolidation in the near term.
The initial upside obstacle for USD/INR appears in the 87.95-88.00 range, which represents an all-time high and psychological milestone. If buyers step in, the pair might surge to 88.50. On the other hand, the initial support level to watch is 87.31, the low from February 7. If bearish momentum continues, the pair may fall back to the 87.05-87.00 range, which represents the bottom of February 5 and the round mark. Further south, the next level of contention lies at 86.51, the February 3 low.
How does the Indian economy affect the Indian rupee?
Between 2006 and 2023, the Indian economy grew at an average pace of 6.13%, ranking among the world’s fastest expanding. India’s rapid expansion has attracted a significant amount of foreign investment. This comprises both foreign direct investment (FDI) in physical projects and foreign funds’ indirect investment (FII) in Indian financial markets. The demand for the Rupee (INR) rises as investment levels increase. Fluctuations in dollar demand from Indian importers have an impact on INR.
How does seasonal US dollar demand from importers and banks affect the rupee?
India has maintained a trade imbalance for the majority of its recent history, suggesting that its imports outnumber its exports. Because the majority of international trade is conducted in US dollars, there are periods when the huge number of imports results in significant US dollar demand, such as owing to seasonal demand or an order glut. During these times, the rupee may decrease as it is heavily sold to meet the demand for dollars, affecting financial markets and prop firm tech solutions that rely on currency stability.