USD/INR jumps on month-end US Dollar demand

The Indian Rupee trades in negative territory in Thursday’s early European session.
Month-end US Dollar demand drags the INR lower, but a surge in foreign fund inflows might cap its downside.
Investors brace for US weekly Initial Jobless Claims and final Q4 GDP report, which are due later on Thursday.

Lallalit Srijandorn FXStreet

The Indian Rupee (INR) loses momentum on Thursday. Concerns over potential tariff retaliations and rising month-end US Dollar (USD) demand from importers undermine the Indian currency. Furthermore, a rise in crude oil prices contributes to the INR’s downside as India is the world's third-largest oil consumer.

Nonetheless, the positive outlook in domestic equities and renewed foreign fund inflows might lift the local currency. Any significant depreciation of the INR might be capped by the foreign exchange intervention from the Reserve Bank of India (RBI). Looking ahead, the US weekly Initial Jobless Claims, the final Gross Domestic Product (GDP) for the fourth quarter (Q4), and Pending Home Sales will be published later on Thursday.

Indian Rupee softens amid global cues

Foreign investors have bought more than $2 billion worth of Indian shares in the last four days, while month-to-date inflows into bonds stood at over $3 billion.
Late Wednesday, Trump signed an order to implement a 25% tariff on auto imports. Trump added that the tariffs would go into effect on April 2 and the US would start to collect them a day later.
Trump will allow up to a one-month reprieve for auto parts imports from his proposed 25% automobile tariffs, per Reuters.
US Durable Goods Orders rose by 0.9% in February, compared to a 3.3% increase (revised from 3.1%) reported in January, according to the US Census Bureau on Wednesday. This figure came in better than the market expectation for a decrease of 1%.

USD/INR’s bearish outlook remains in play

The Indian Rupee weakens on the day. The bearish outlook of the USD/INR pair remains intact as the price remains capped below the key 100-day Exponential Moving Average on the daily timeframe. The downward momentum is reinforced by the 14-day Relative Strength Index (RSI), which stands below the midline near 36.0, suggesting the path of least resistance is to the downside.

The initial support level for USD/INR is seen at 85.56, the low of March 26. Sustained bearish pressure below the mentioned level could see a drop to 84.84, the low of December 19, followed by 84.22, the low of November 25, 2024.

On the bright side, the key resistance level for the pair emerges in the 85.95-86.00 zone, representing the 100-day EMA and the psychological level. Further north, the next hurdle to watch is 86.48, the low of February 21, en route to 87.00, the round figure.

Indian Rupee FAQs

What are the key factors driving the Indian Rupee?

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.

How do the decisions of the Reserve Bank of India impact the Indian 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.

What macroeconomic factors influence the value of the Indian Rupee?

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.

How does inflation impact the Indian 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.

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