- The Indian Rupee gains ground in Friday’s early European session.
- Softer US Dollar and falling oil prices underpin the INR.
- The US March PPI and the advanced Michigan Consumer Sentiment data will be the highlights later on Friday.
The Indian Rupee (INR) strengthens on Friday. US President Donald Trump's move to temporarily lower tariffs on many countries provides some support to the local currency. Additionally, a decline in crude oil prices contributes to the INR’s upside as India is the world's third-largest oil consumer, and lower crude oil prices tend to have a positive impact on the Indian currency value.
However, reduced Federal Reserve (Fed) rate cut bets could strengthen the US Dollar (USD). Investors anticipate the US central bank will resume cutting interest rates in June and probably reduce its policy rate by a full percentage point by the end of the year.
India’s Industrial Output and Manufacturing Output data are due later on Friday. On the US docket, the Producer Price Index (PPI) for March and the advanced Michigan Consumer Sentiment will be published. Also, the Fed’s Alberto Musalem and John Williams are set to speak.
Indian Rupee recovers amid a weaker US Dollar
- The Reserve Bank of India’s (RBI) Monetary Policy Committee (MPC) unanimously voted to cut the policy Repo Rate by 25 basis points (bps) to 6.00% at its April meeting on Wednesday.
- US President Donald Trump let stand a 10% blanket levy on all imports announced last week and set a 90-day pause on additional US tariffs during which the White House will negotiate the higher tariffs.
- The US Consumer Price Index (CPI) inflation declined to 2.4% YoY in March from 2.8% in February, according to the US Bureau of Labor Statistics (BLS) on Thursday. This reading came in below the market consensus of 2.6%.
- The core CPI, which excludes volatile food and energy prices, increased 2.8% YoY in March versus 3.1% prior and came in below the estimation of 3.0%. On a monthly basis, the headline CPI declined 0.1%, while the core CPI rose 0.1%.
- Boston Fed President Susan Collins said Thursday that large trade tariffs now being pursued by the Trump administration will almost certainly drive inflation higher and depress growth in the near term. Collins sees steady monetary policy amid uncertainty.
- Chicago Fed President Austan Goolsbee highlighted high levels of uncertainty amid very aggressive trade tariffs and argued for a wait-and-see approach to monetary policy. Goolsbee added that if the economy gets back on track, rate cuts would still be possible.
USD/INR maintains a bullish bias, consolidation is likely in the near term
The Indian Rupee trades firmer on the day. The uptrend of the USD/INR pair remains intact, with the price being above the key 100-day Exponential Moving Average (EMA). Nonetheless, the 14-day Relative Strength Index (RSI) hovers around the midline. This suggests that further consolidation cannot be ruled out in the near term.
The first upside barrier for USD/INR emerges at 86.61, the high of April 10. Extended gains could see a rally to the 87.00 psychological level. A decisive break above the mentioned level could pave the way to 87.53, the high of February 28.
In the bearish event, the key support level for the pair is located in the 86.00-85.90 zone, representing the 100-day EMA and round figure. The next contention level to watch is 85.48, the low of March 24, followed by 85.00.
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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