The Indian Rupee (INR) has weakened in Tuesday’s Asian session due to dovish bets on the Reserve Bank of India (RBI) and concerns over potential trade tariffs. Consumer inflation in India fell to a near six-year low in April, increasing the likelihood of the RBI extending its rate cutting cycle, which undermines the INR. However, a decline in crude oil prices and a potential multi-phase trade deal between the US and India could limit the currency’s losses. India is discussing a trade deal with the US, which is expected to be structured in three tranches, with an interim agreement possibly reached before July.
The USD/INR pair remains bearish, with the price capped below the 100-day Exponential Moving Average (EMA) on the daily chart. The first downside target for USD/INR is 85.00, with further potential targets at 84.61 and 84.20. On the other hand, sustained trading above the 100-day EMA could lead to a move towards the 86.00-86.05 zone.
The Indian Rupee is highly sensitive to external factors, including crude oil prices, the value of the US Dollar, and foreign investment. The RBI actively intervenes in forex markets to maintain a stable exchange rate and adjusts interest rates to control inflation. Macroeconomic factors such as inflation, interest rates, economic growth rate, balance of trade, and foreign investment inflows also influence the value of the Rupee.
Higher inflation is generally negative for the currency, while higher interest rates can be positive due to increased demand from international investors. The RBI’s actions, including interest rate decisions and intervention in forex markets, play a significant role in shaping the Rupee’s value. Investors will be watching the Fedspeak later on Tuesday, with several Federal Reserve officials set to speak, which could impact the US Dollar and subsequently the INR.
In related news, ICRA has forecast India’s GDP growth at 6.9% in the quarter ended March 31, and at 6.3% for the full 2024-25 fiscal year, which is lower than the National Statistics Office (NSO) estimates. Moody’s has also lowered the US rating from ‘Aaa’ to ‘Aa1’, citing concerns over the country’s ballooning deficits and interest costs. Overall, the Indian Rupee remains vulnerable to external factors and economic indicators, and its value is expected to remain volatile in the coming days.