USD/INR recovers early losses as US Dollar outperforms

The Indian Rupee (INR) trades flat around 88.30 against the US Dollar (USD) on Tuesday. The USD/INR claws back early losse as the US Dollar recovers strongly ahead of the opening of United States (US) markets after an extended weekend.

The US Dollar Index (DXY), which tracks the Greenback's value against six major currencies, jumps to near 98.45 after recovering from its monthly low of around 97.50. A flat performance by the USD/INR pair at times when the DXY is up almost 0.7% indicates strength in the Indian Rupee.

However, the broader outlook of the Indian currency is weak due to the fallout of tariffs on Indian exports by the United States (US). Exports from India to the US are facing the highest tariffs among Washington’s trading partners as President Donald Trump imposed an additional 25% duty on New Delhi for buying Oil from Russia.

On Monday, US President Trump highlighted trade tensions with India again, through a post on Truth.Social, citing higher trade deficit concerns, significant tariffs charged by New Delhi, and buying Oil from Russia.

“What few people understand is that we do very little business with India, but they do a tremendous amount of business with us. In other words, they sell us massive amounts of goods, their biggest “client,” but we sell them very little - Until now, a totally one-sided relationship, and it has been for many decades. The reason is that India has charged us, until now, such high Tariffs, the most of any country, that our businesses are unable to sell into India. It has been a totally one-sided disaster! Also, India buys most of its oil and military products from Russia, very little from the U.S. They have now offered to cut their Tariffs to nothing, but it’s getting late. They should have done so years ago. Just some simple facts for people to ponder!!!, Trump said.

Trade tensions between the US and India have dampened the competitiveness of Indian exports in the global market, making it hard for exporters to charge higher prices.

The ongoing US-India trade tensions have also led to a significant outflow of foreign funds from Indian stock markets. On Monday, Foreign Institutional Investors (FIIs) sold equity shares worth Rs. 1,429.71 crores. In July and August, FIIs pared stake worth Rs. 94,569.6 crores cumulatively.

Daily digest market movers: Indian Rupee surrenders early gains against US Dollar

• The US Dollar gains as the market sentiment turns risk-averse, with investors awaiting a slew of US labor market-related data, including JOLTS Job Openings for July, ADP Employment Change, and the Nonfarm Payrolls (NFP) data for August, that will be released this week. Investors will closely track job-related data to get cues about the current status of the labor market.
• Market expectations for the Federal Reserve (Fed) to cut interest rates in the September policy meeting intensified after July’s NFP report showed a dramatic downward revision in employment numbers of May and June. According to the CME FedWatch tool, there is an 89.7% chance that the Fed will cut interest rates in the policy meeting this month.
• Meanwhile, Fed officials are also guiding a dovish monetary policy stance on interest rates amid escalating labor market concerns.
• On Friday, San Francisco Fed President Mary Daly signaled that officials will reduce interest rates in the policy meeting this month, citing downside labor market risks. Daly also stated that the tariff-driven inflation will likely be temporary. “Tariffs are pushing inflation higher, and the labor market is slowing, Daly said and added, “I think tariff-related price increases will be a one-off.”
• In Tuesday's session, investors will focus on the ISM Manufacturing Purchasing Managers’ Index (PMI) data for August, which will be published at 14:00 GMT. The Manufacturing PMI is seen higher at 49.0 against 48.0 in July, suggesting that the business activity contracted again but at a moderate pace. A figure below the 50.0 threshold is considered a contraction in business activity.

Technical Analysis: USD/INR holds key 20-day EMA

USD/INR demonstrates strength near a fresh all-time high around 88.50, posted on Monday. The near-term trend of the pair remains bullish as it holds above the 20-day Exponential Moving Average (EMA), which trades near 87.63.

The 14-day Relative Strength Index (RSI) stabilizes above 60.00, suggesting that a fresh bullish momentum has come into effect.

Looking down, the 20-day will act as key support for the major. On the upside, the pair has entered uncharted territory. The round figure of 89.00 would be the key hurdle for the pair.