- The Indian Rupee gains ground in to begin the new week.
- Fresh foreign and USD inflows support the INR.
- HSBC India Manufacturing PMI rose to 57.6 in March vs. 56.3 prior; Services PMI eased during the same reported period.
- The preliminary reading of the US S&P Global PMI report will be the highlight later on Monday.
The Indian Rupee (INR) trades stronger on Monday after closing its strongest in over two months. Positive domestic equities and fresh foreign fund inflows could provide some support to the Indian currency. Additionally, the US Dollar (USD) inflows help mitigate the impact of the decline in Asian peers.
The latest preliminary data released on Monday showed that the HSBC India Manufacturing Purchasing Managers Index (PMI) rose to 57.6 in March from 56.3 in February. Additionally, the Indian Services PMI eased to 57.7 in March versus 59.0 prior. The Composite PMI declined to 58.6 in March from 58.8 in February. The local currency remains strong in an immediate reaction to the mixed PMI data.
Nonetheless, a rebound in Crude Oil prices amid the ongoing geopolitical tensions in the Middle East might weigh on the local currency as India is the world's third-largest oil consumer. Investors brace for the advanced US S&P Global PMI data, which will be released later on Monday.
Indian Rupee gains traction as inflows resume
- "India's manufacturing sector expanded at a faster pace in March ... The output index rose to its highest level since July 2024,” said Pranjul Bhandari, chief India economist at HSBC.
- Forex traders said the INR has been gaining as FPIs turned net buyers for the second time during the week with respect to equity and have been buying heavily into debt.
- “Given the current market dynamics, the USD-INR pair is expected to trade between 86.00 and 86.80 in the near term. However, with the current global headwinds a slight rebound towards the 86.50-86.60 range is expected," said CR Forex Advisors MD Amit Pabari.
- Trump has declared April 2 to be "Liberation Day" for the US, when he will implement so-called reciprocal tariffs that seek to equalize US tariffs with those charged by trading partners, as well as tariffs on sectors such as automobiles, pharmaceuticals, and semiconductors, which he has repeatedly stated would be enacted on that day.
- Trump's administration said that it will revoke the temporary legal status of more than half a million migrants from Cuba, Haiti, Nicaragua and Venezuela, per BBC. Those migrants have been warned to leave the country before their permits and deportation shields are cancelled on April 24.
- Fed policymakers projected two quarter-point cuts later this year, the same median forecast as in December.
USD/INR seems fragile, downside risks appear below the 100-day EMA
The Indian Rupee trades on a firmer note on the day. The bullish outlook of the USD/INR pair looks vulnerable as the price hovers around the key 100-day Exponential Moving Average on the daily chart. The pair could resume its downside bias if it decisively crosses below the 100-day EMA. The 14-day Relative Strength Index (RSI) stands below the midline near 32.70, suggesting that further downside looks favorable.
The first upside barrier for USD/INR emerges at 86.48, the low of February 21. Further north, the next hurdle is seen at the 87.00 psychological level. Sustained trading above this level could see a rally to 87.38, the high of March 11.
On the other hand, a breach of the 100-day EMA of 85.97 could drag the pair lower to 85.60, the low of January 6. The additional downside filter to watch is 84.84, the low of December 19, 2024.
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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