USD/INR climbs as Trump’s tariff threats to BRICS drag Indian Rupee to all-time low

The Indian Rupee weakens to near an all-time low in Monday’s early European session.
The Indian November HSBC Manufacturing PMI came in at 56.5 vs. 57.5 prior, weaker than expected.
Persistent portfolio outflows and weak domestic macroeconomic data undermine the INR.
Investors brace for the US ISM Manufacturing PMI, which is due later on Monday.

The Indian Rupee (INR) falls to a fresh record low on Monday. The latest data released on Monday showed that the HSBC India Manufacturing Purchasing Managers Index (PMI) eased to 56.5 in November from the previous reading of 57.5. This figure was below the market consensus of 57.3. The local currency remains weak in an immediate reaction to the downbeat PMI data.

Donald Trump's victory in the US Presidential election sparked a wave of Greenback strength and dragged the INR lower. Additionally, the weaker-than-expected Gross Domestic Product (GDP) data for the July-September quarter could spark fresh outflows from stocks, weighing on the local currency.

Donald Trump threatened 100% tariffs on BRICS nations, including India, if they went ahead with developing their common currency to replace the USD. Meanwhile, India has been cautious in its ambitious move to de-dollarise even as the United States recently became India's leading trading partner.

Investors await the US ISM Manufacturing PMI later on Monday. On the Indian docket, the Reserve Bank of India (RBI) interest rate decision will be in the spotlight on Friday. Goldman Sachs analysts expect the Indian central bank to maintain the repo rate and policy stance unchanged but sound cautious on food inflation and acknowledge the moderation in growth.

Indian Rupee remains weak amid unabated foreign fund outflows, downbeat GDP data

India’s real GDP growth slumped to a seven-quarter low of 5.4% in the July to September 2024 quarter from a 6.7% growth in the first quarter (Q1). The RBI forecast GDP growth of 6.8% in Q2.
"Despite the sharp slowdown in GDP growth, we maintain our view of a pause by the RBI next week given elevated inflation and an uncertain global environment," noted Upasna Bhardwaj, chief economist at Kotak Mahindra Bank.
US President-elect Donald Trump said on Saturday that the BRICS Countries should use the US Dollar (USD) as their reserve currency and threatened to impose a 100% tariff if they supported another currency to replace the USD, per BBC.
Foreign investors net sold about $2.5 billion of local stocks in November, adding to the $11 billion of outflows in October.
The US ISM Manufacturing PMI is expected to improve to 47.5 in November from 46.5 in October.

USD/INR maintains a strong uptrend in the longer term

The Indian Rupee trades weaker on the day. Technically, the constructive outlook of the USD/INR pair remains in play on the daily chart as the pair holds above the key 100-day Exponential Moving Average (EMA). The upward momentum is supported by the 14-day Relative Strength Index, which is located above the midline near 65.85, suggesting the path of least resistance is to the upside.

Bullish candlesticks and sustained trading above the ascending trend channel at 84.55 could lead USD/INR to the 85.00 psychological mark.

On the downside, bearish candlesticks below the lower limit of the trend channel of 84.28 could drag the pair back to 83.96, the 100-day EMA. If there’s enough bearish momentum, USD/INR could head for 83.65, the low of August 1.

RBI FAQs

What is the role of the Reserve Bank of India?

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.

How do the decisions of the Reserve Bank of India affect the Rupee?

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.

Does the Reserve Bank of India directly intervene in FX markets?

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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