- The Indian Rupee weakens in Tuesday’s early European session.
- Ongoing equity outflows and US trade policy worries weigh on the INR.
- Investors await the Fedspeak later on Tuesday for a fresh impetus.
The Indian Rupee (INR) softens on Tuesday after reaching a three-week high in the previous session. Persistent capital outflows and renewed concerns about tariff threats from US President Donald Trump exert some selling pressure on the local currency.
On the other hand, the foreign exchange intervention from the Reserve Bank of India (RBI) could prevent the INR from significant depreciation. Additionally, the decline in crude oil prices on reports that OPEC+ will proceed with a planned oil output increase in April might help limit the Indian Rupee’s losses as India is the world's third-largest oil consumer.
The Federal Reserve’s (Fed) officials are scheduled to speak later on Tuesday, including Thomas Barkin and John Williams. On Wednesday, the Indian HSBC Composite Purchasing Managers' Index (PMI) and Services PMI will be in the spotlight.
Indian Rupee remains vulnerable due to Trump’s latest tariff threats
- India’s Manufacturing PMI eased to a 14-month low of 56.3 in February, data released by S&P Global on Monday showed. This figure came in lower than the previous reading and the estimation of 57.1.
- "Although output growth slowed to the weakest level since December 2023, overall momentum in India's manufacturing sector remained broadly positive in February," said Pranjul Bhandari, Chief India Economist at HSBC.
- The RBI's net short dollar position in forwards and futures hit a record high of $77.5 billion in January 2025, as per data released after market hours on Friday.
- China’s Commerce Ministry vowed to take “necessary countermeasures” to safeguard China’s legitimate rights and interests. The ministry reiterated its firm opposition to the US move to impose another 10% tariff on Chinese imports starting on Tuesday.
- The US Manufacturing PMI declined to 50.3 in February versus 50.9 prior, according to the Institute for Supply Management (ISM) on Monday. This figure came in below the market consensus of 50.5.
USD/INR holds a bullish undertone
The Indian Rupee trades softer on the day. The USD/INR pair maintains a constructive outlook as the price remains well-supported above the key 100-day Exponential Moving Average (EMA) on the daily chart. Furthermore, the 14-day Relative Strength Index (RSI) is located above the midline near 61.00, suggesting buyers are maintaining some control.
If bullish momentum holds, USD/INR might retest 87.53, the high of February 28. A sustained break above this area could pave the way for a move toward an all-time high near 88.00, en route to 88.50.
If more red candlesticks appear and selling momentum increases, the pair could see a drop to the 87.05-87.00 zone, representing the low of February 27 and the round mark. The next bearish target to watch is 86.48, the low of February 21, followed by 86.14, the low of January 27.
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.
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