USD/INR jumps on renewed US Dollar demand

Indian Rupee loses traction in Tuesday’s early European session.
The renewed US Dollar demand and higher oil prices weigh on the INR.
Investors await the US JOLTs Job Openings later on Tuesday ahead of the RBI decision.

Lallalit Srijandorn FXStreet

The Indian Rupee (INR) weakens on Tuesday. The renewed US Dollar (USD) demand and a rise in crude oil prices put pressure on the local currency. Barclays Bank Plc strategists said that the INR is likely to underperform even as the USD remains under pressure. “The RBI is expected to be focused on replenishing its FX buffers while allowing its forwards book to run off,” added Barclays Bank Plc strategists.

Nonetheless, stronger GDP data from India and inflows related to the rejig of a global equity index could provide some support to the Indian currency. The US JOLTs Job Openings will be published later on Tuesday. On Friday, the Reserve Bank of India (RBI) interest rate decision and the US May employment report will be in the spotlight. The Indian central bank is anticipated to deliver a third straight 25 basis points (bps) rate cut to boost growth.

Indian Rupee drifts lower on higher oil prices

The US President Donald Trump's administration has asked its trade partners to submit their best offers by Wednesday, in order to finalize deals before July 8, per Reuters.
India's GDP expanded by 7.4% year-on-year in the first quarter (Q1) of 2025, up from 6.2% the previous quarter and stronger than the estimation of 6.7%.
India is the world's fastest-growing major economy, albeit growth has slowed significantly from the 9.2% reported in fiscal year 2023-24.
The US Manufacturing Purchasing Managers Index (PMI) eased to 48.5 in May from 48.7 in April, according to the Institute for Supply Management (ISM) on Monday. This figure came in weaker than the expectation of 49.5.

USD/INR’s bearish pressure lingers despite modest recovery

The Indian Rupee softens on the day. The USD/INR pair maintains the negative view as the price remains capped under the key 100-day Exponential Moving Average (EMA) on the daily chart. However, in the near term, further consolidation or temporary recovery cannot be ruled out, with the 14-day Relative Strength Index (RSI) hovering around the midline.

The first bearish target for USD/INR emerges in the 85.05-85.00 zone, representing the low of May 27 and the round figure. If bearish pressure kicks in, the pair could slip back toward 84.61, the low of May 12. The additional downside filter to watch is 83.85, the lower limit of the trend channel.

In the bullish case, the crucial resistance level for the pair is located in the 85.55-85.60 region, the confluence of the 100-day EMA, and the upper boundary of the trend channel. A decisive break above the mentioned level could open the door for a retest of the high of May 22 at 86.10.

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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