USD/INR falls back as Indian Rupee gains on US-India trade deal optimism
- The Indian Rupee claws back early losses against the US Dollar on US-India trade deal optimism.
- The US Initial Jobless Claims for the week ending September 13 came in lower at 231K.
- India’s CEA Nageswaran expresses optimism that US-India trade tensions will resolve in a couple of months.
The Indian Rupee (INR) recovers early losses and turns positive against the US Dollar (USD) during late trading hours in India on Friday. The USD/INR pair drops to near 88.20 on optimism over the United States (US)-India trade agreement. Investors turn optimistic on improving US-India trade relations after comments from India’s Chief Economic Adviser (CEA) V. Anantha Nageswaran on Thursday, in a gathering in Kolkata, stating that Washington might roll back the 25% tariff penalty on Indian imports in the next couple of months.
“Beneath the surface, lots of conversations are going on between the two governments. Although I don't have a crystal ball or any insider information, I can say that my personal confidence is that in the next couple of months, if not earlier, we will see a resolution, at least to the extra tariff of 25%,” Nageswaran said, Mint reported.
Washington imposed an extra 25% tariff on India in early August for buying Oil from Russia, blaming India for indirectly funding Moscow for continuing the war with Ukraine.
India’s CEA Nageswaran has also expressed confidence that the US will reduce 25% reciprocal tariffs on New Delhi to between 10% and 15%.
India-made products would regain their glory in the global market if the US reduces tariffs on imports from New Delhi as projected. The ongoing trade tensions between the US and India have significantly impacted the interest of overseas investors in the Indian stock market.
Foreign Institutional Investors (FIIs) have pared stake worth Rs. 1,05,532 crores in Indian equity markets since the first day of July this year.
The table below shows the percentage change of Indian Rupee (INR) against listed major currencies today. Indian Rupee was the strongest against the British Pound.
| USD | EUR | GBP | JPY | CAD | AUD | INR | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.21% | 0.35% | 0.00% | 0.12% | 0.18% | -0.11% | 0.43% | |
| EUR | -0.21% | 0.16% | -0.28% | -0.09% | -0.07% | -0.31% | 0.21% | |
| GBP | -0.35% | -0.16% | -0.40% | -0.25% | -0.23% | -0.50% | 0.05% | |
| JPY | 0.00% | 0.28% | 0.40% | 0.11% | 0.31% | -0.14% | 0.29% | |
| CAD | -0.12% | 0.09% | 0.25% | -0.11% | 0.06% | -0.22% | 0.30% | |
| AUD | -0.18% | 0.07% | 0.23% | -0.31% | -0.06% | -0.29% | 0.28% | |
| INR | 0.11% | 0.31% | 0.50% | 0.14% | 0.22% | 0.29% | 0.38% | |
| CHF | -0.43% | -0.21% | -0.05% | -0.29% | -0.30% | -0.28% | -0.38% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Indian Rupee from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent INR (base)/USD (quote).
Daily digest market movers: Fed signals two more interest rate cuts this year
- The Indian Rupee gains against the US Dollar even as the latter gained ground after the monetary policy announcement by the Federal Reserve (Fed) on Wednesday, in which it reduced interest rates by 25 basis points (bps) to 4.00%-4.25%.
- During the press time, the US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, extends its upside to near 97.60
- However, the outlook of the US Dollar remains uncertain as the closely tracked Fed’s dot plot has signaled that the United States (US) central bank will cut interest rates two times more in the remainder of the year, along with one rate cut each in 2026 and 2027.
- Meanwhile, better-than-projected Initial Jobless Claims data for the week ending September 13 has also offered some support to the US Dollar. The Department of Labour reported on Thursday that the number of individuals seeking jobless benefits for the first time came in lower at 231K than estimates of 240K and the prior reading of 264K.
- Going forward, investors will focus on the speech from San Francisco Fed President Mary Daly scheduled at 18:30 GMT. Investors would look for cues regarding the pace of interest rate cuts by the Fed in the monetary policy meeting ahead.
Technical Analysis: USD/INR holds 20-day EMA
USD/INR retreats to near 88.20 on Friday. However, the near-term trend of the pair remains bullish as it stays above the 20-day Exponential Moving Average (EMA), which currently trades around 88.08.
The 14-day Relative Strength Index (RSI) struggles to recover above 60.00, suggesting that the bullish momentum has over for now.
Looking down, the 20-day EMA will act as key support for the major. On the upside, the September 11 high of 88.65 would be the key hurdle for the pair.
Indian economy FAQs
The Indian economy has averaged a growth rate of 6.13% between 2006 and 2023, which makes it one of the fastest growing in the world. India’s high growth has attracted a lot of foreign investment. This includes Foreign Direct Investment (FDI) into physical projects and Foreign Indirect Investment (FII) by foreign funds into Indian financial markets. The greater the level of investment, the higher the demand for the Rupee (INR). Fluctuations in Dollar-demand from Indian importers also impact INR.
India has to import a great deal of its Oil and gasoline so the price of Oil can have a direct impact on the Rupee. Oil is mostly traded in US Dollars (USD) on international markets so if the price of Oil rises, aggregate demand for USD increases and Indian importers have to sell more Rupees to meet that demand, which is depreciative for the Rupee.
Inflation has a complex effect on the Rupee. Ultimately it indicates an increase in money supply which reduces the Rupee’s overall value. Yet if it rises above the Reserve Bank of India’s (RBI) 4% target, the RBI will raise interest rates to bring it down by reducing credit. Higher interest rates, especially real rates (the difference between interest rates and inflation) strengthen the Rupee. They make India a more profitable place for international investors to park their money. A fall in inflation can be supportive of the Rupee. At the same time lower interest rates can have a depreciatory effect on the Rupee.
India has run a trade deficit for most of its recent history, indicating its imports outweigh its exports. Since the majority of international trade takes place in US Dollars, there are times – due to seasonal demand or order glut – where the high volume of imports leads to significant US Dollar- demand. During these periods the Rupee can weaken as it is heavily sold to meet the demand for Dollars. When markets experience increased volatility, the demand for US Dollars can also shoot up with a similarly negative effect on the Rupee.
Author
Sagar Dua
FXStreet
Sagar Dua is associated with the financial markets from his college days. Along with pursuing post-graduation in Commerce in 2014, he started his markets training with chart analysis.
