- The Indian Rupee edges lower in Wednesday’s early European session.
- Trump is set to implement tariffs on US trading partners on Wednesday.
- The US March ADP Employment Change is due later on Wednesday.
The Indian Rupee (INR) softens on Wednesday. The local currency retreats after logging its best monthly rise in over six years, driven by a weaker Greenback and renewed foreign inflows into equities. Analysts expect the INR’s near-term outlook to depend on US President Donald Trump’s anticipated reciprocal tariff on major trading partners, set on Wednesday. Traders will assess how the levies may impact global trade and growth prospects.
Looking ahead, traders brace for US President Donald Trump’s announcement of reciprocal tariffs later on Wednesday. Also, the US March ADP Employment Change will be published. Remarks from Federal Reserve (Fed) officials will also be in focus throughout the week.
The Reserve Bank of India (RBI) will announce its interest rate decision next week. A Reuters poll of economists anticipates just one more rate cut in August, which would mark its shortest easing cycle on record. This, in turn, might exert further mild downward pressure on the Indian currency.
Indian Rupee remains weak ahead of Trump’s tariff announcement
- In March, the rupee posted its best monthly performance in more than six years, bolstered by foreign portfolio and other inflows, coupled with a scaling back of bearish wagers.
- Overseas investors bought nearly $4 billion of Indian equities and bonds, a significant reversal from approximately $12 billion in outflows seen in January and February.
- “The rupee has benefited from a recent weakness in the dollar and the Reserve Bank of India allowing for a two-way movement, but key risks to India’s external sector balance continue to stem from the uncertainties on U.S. trade/tariff policies,” Kotak Institutional Equities said in a note.
- Trump said that he will impose “reciprocal tariffs” on Wednesday, suggesting that many countries with their own duties on US goods could suddenly face new trade barriers. The White House stated that Trump’s forthcoming tariffs will take effect right after they are unveiled on Wednesday.
- US Treasury Secretary Scott Bessent said late Tuesday that the amounts announced on Wednesday are the highest the tariffs will go. However, countries could then take steps to bring the tariffs down.
- The US ISM Manufacturing Purchasing Managers Index (PMI) declined to 49.0 in March from 50.3 in February. This figure came in below the market consensus of 49.5.
- Chicago Fed President Austan Goolsbee said late Tuesday that US hard data are strong, but soft data almost cratering. Goolsbee further stated that uncertainty is tainted with fear regarding inflation.
USD/INR’s bearish outlook remains intact below the 100-day EMA
The Indian Rupee trades weaker on the day. According to the daily chart, the USD/INR pair keeps the bearish vibe, with the price holding below the key 100-day Exponential Moving Average (EMA). The path of least resistance is to the downside as the 14-day Relative Strength Index (RSI) stands below the midline near 32.90.
The 85.00 psychological level acts as an initial support level for the pair. The additional downside filter to watch is 84.84, the low of December 19. The next bearish target is seen at 84.22, the low of November 25, 2024.
On the other hand, the key resistance level for USD/INR is located in the 85.90-86.00 zone, representing the 100-day EMA and round mark. Sustained upside momentum could pave the way to 86.48, the low of February 21, and then a rally to 87.00, the round figure.
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.
