USD/INR jumps amid tensions over Kashmir, rising 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 weakens 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 softens 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.
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.
Author
Lallalit Srijandorn
FXStreet
Lallalit Srijandorn is a Parisian at heart. She has lived in France since 2019 and now becomes a digital entrepreneur based in Paris and Bangkok.
