- The Indian Rupee edges higher in Thursday’s early European session.
- Trump said new China trade deal ‘possible’ despite tensions.
- Persistent outflows from Indian stocks could weigh on the INR.
The Indian Rupee (INR) recovers on Thursday, tracking a rise in most of its Asian peers, including Chinese Yuan. US President Donald Trump said it would be possible to reach a fresh trade deal with China, signaling he is open to heading off a brewing trade fight between the United States and China. Furthermore, the potential US Dollar (USD) selling intervention by the Reserve Bank of India (RBI) and a decline in crude oil prices might help limit the INR’s losses.
Nonetheless, Foreign Portfolio Investment (FPI) outflows could exert some selling pressure on the local currency. FPIs sold more than $10 billion worth of Indian equities in the first six weeks of 2025, the largest outflow ever recorded during this time. This enormous selloff has resulted in the worst start for domestic markets in over a decade.
Traders will keep an eye on the US weekly Initial Jobless Claims, the CB Leading Economic Index and the Philly Fed Manufacturing Index reports, which will be released later on Thursday. Also, the Federal Reserve’s (Fed) Austan Goolsbee, Michael Barr and Alberto Musalem are scheduled to speak on Thursday.
Indian Rupee rebounds amid heightened global market volatility
- The RBI’s foreign exchange reserves have declined sharply by over $75 billion since September 27, while the INR depreciated from 83.70 to 87.96 against the USD on February 10.
- India’s Gross Domestic Product (GDP) is estimated to grow at 6.6% in the October-December quarter of 2024-25, down from 8.6% recorded in the same period of 2023-24, the Bank of Baroda showed Tuesday.
- The minutes from the FOMC meeting released on Wednesday indicated that the Fed policymakers believe that it is well positioned to take time to assess the outlook for economic activity, the labor market and inflation.
- Fed officials agreed that inflation must show clear signs of slowing down before any further rate reductions can be made.
- Fed Vice Chairman Philip Jefferson said late Wednesday the US central bank has time to weigh its next interest rate decision move, citing a robust economy and still above-target inflation, per Reuters.
- Chicago Fed President Austan Goolsbee stated that inflation has fallen but is still too high, adding that once inflation falls, the interest rates can fall more.
USD/INR keeps the bullish vibe despite consolidation in the near term
The Indian Rupee trades firmer on the day. The bullish tone of the USD/INR pair remains in play as the pair holds above the key 100-day Exponential Moving Average (EMA) on the daily chart. The 14-day Relative Strength Index (RSI) stands above the midline near 55.50, supporting the buyers in the near term.
The first upside barrier for USD/INR is located at the 87.00 psychological level. Bullish candlesticks past the mentioned level could see a rally to an all-time high near 88.00, en route to 88.50.
In the bearish case, the initial support level to watch is 86.58, the low of February 17. The additional downside target emerges at 86.35, the low of February 12, followed by 86.14, the low of January 27.
Indian economy FAQs
The Indian economy has averaged a growth rate of 6.13% between 2006 and 2023, which makes it one of the fastest growing in the world. India’s high growth has attracted a lot of foreign investment. This includes Foreign Direct Investment (FDI) into physical projects and Foreign Indirect Investment (FII) by foreign funds into Indian financial markets. The greater the level of investment, the higher the demand for the Rupee (INR). Fluctuations in Dollar-demand from Indian importers also impact INR.
India has to import a great deal of its Oil and gasoline so the price of Oil can have a direct impact on the Rupee. Oil is mostly traded in US Dollars (USD) on international markets so if the price of Oil rises, aggregate demand for USD increases and Indian importers have to sell more Rupees to meet that demand, which is depreciative for the Rupee.
Inflation has a complex effect on the Rupee. Ultimately it indicates an increase in money supply which reduces the Rupee’s overall value. Yet if it rises above the Reserve Bank of India’s (RBI) 4% target, the RBI will raise interest rates to bring it down by reducing credit. Higher interest rates, especially real rates (the difference between interest rates and inflation) strengthen the Rupee. They make India a more profitable place for international investors to park their money. A fall in inflation can be supportive of the Rupee. At the same time lower interest rates can have a depreciatory effect on the Rupee.
India has run a trade deficit for most of its recent history, indicating its imports outweigh its exports. Since the majority of international trade takes place in US Dollars, there are times – due to seasonal demand or order glut – where the high volume of imports leads to significant US Dollar- demand. During these periods the Rupee can weaken as it is heavily sold to meet the demand for Dollars. When markets experience increased volatility, the demand for US Dollars can also shoot up with a similarly negative effect on the Rupee.
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