USD/INR attracts some buyers on firmer US Dollar, higher crude oil prices
- Indian Rupee edges lower in Wednesday’s early European session.
- Higher crude oil prices weigh on the INR, but a softer US Dollar and foreign inflows might cap its downside.
- The US ISM Services PMI data will be the highlight later on Wednesday.
The Indian Rupee (INR) loses ground on Wednesday. Extended gains in crude oil prices weigh on the local currency. It’s worth noting that India is the world's third-largest oil consumer, and higher crude oil prices tend to have a negative impact on the INR value.
Nonetheless, the weaker US Dollar (USD) after the downbeat economic data might support the local currency. Analysts from BofA Securities said that Indian markets will likely be among the top three in Asia to attract foreign inflows once tariff-related uncertainties ease. This, in turn, might boost the Indian currency.
The US ISM Services PMI is due later on Wednesday. Traders await the Reserve Bank of India (RBI) interest rate decision on Friday, which is expected to deliver a third straight 25 basis points (bps) rate cut. On the US docket, the US May employment report will take center stage.
Indian Rupee loses traction amid tariff uncertainty
- India's economy is projected to grow by 6.3% in 2025-26 and 6.4% in 2026-27, according to the Organisation for Economic Cooperation and Development (OECD).
- "India within Asia should be one of the best markets for investments as they have a lot of drivers for growth which other markets do not have," said David Hauner, head of global emerging markets fixed income strategy at BofA Securities.
- The number of job openings on the last business day of April stood at 7.39 million versus 7.2 million prior, the US Bureau of Labor Statistics (BLS) reported in the Job Openings and Labor Turnover Survey (JOLTS) on Tuesday. This figure came in above the market expectation of 7.1 million.
- Fed Board of Governors member Lisa D. Cook said on Tuesday that although the US economy appears to be in a healthy position for the time being, the Trump administration's trade policies remain the biggest economic threat to stability.
- Chicago Fed President Austan Goolsbee noted that the US central bank will have to wait and see if tariffs have a big or small impact on the economy.
USD/INR could resume upside above the key 100-day EMA
The Indian Rupee weakens on the day. The USD/INR pair stands around the key 100-day Exponential Moving Average (EMA) on the daily chart. The pair could resume its upside if the price decisively crosses above the 100-day EMA. Meanwhile, the 14-day Relative Strength Index (RSI) is located above the midline near 55.0, suggesting that further upside looks favorable in the near term.
The first upside barrier for USD/INR emerges at 86.10, the high of May 22. Any follow-through buying above this level could retest 86.71, the high of April 9, en route to 87.30, the high of March 12.
On the flip side, the initial support level is seen at 85.30, the low of June 3. Bearish candlesticks and downside momentum could drag the pair lower to 85.04, the low of May 27. Further south, the next contention level to watch is 84.61, the low of May 12.
RBI FAQs
The role of the Reserve Bank of India (RBI), in its own words, is "..to maintain price stability while keeping in mind the objective of growth.” This involves maintaining the inflation rate at a stable 4% level primarily using the tool of interest rates. The RBI also maintains the exchange rate at a level that will not cause excess volatility and problems for exporters and importers, since India’s economy is heavily reliant on foreign trade, especially Oil.
The RBI formally meets at six bi-monthly meetings a year to discuss its monetary policy and, if necessary, adjust interest rates. When inflation is too high (above its 4% target), the RBI will normally raise interest rates to deter borrowing and spending, which can support the Rupee (INR). If inflation falls too far below target, the RBI might cut rates to encourage more lending, which can be negative for INR.
Due to the importance of trade to the economy, the Reserve Bank of India (RBI) actively intervenes in FX markets to maintain the exchange rate within a limited range. It does this to ensure Indian importers and exporters are not exposed to unnecessary currency risk during periods of FX volatility. The RBI buys and sells Rupees in the spot market at key levels, and uses derivatives to hedge its positions.
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.
