USD/INR softens ahead of Indian/US PMI releases
- The Indian Rupee gathers strength in Friday’s Asian session.
- Significant US Dollar sales and easing concerns on trade tensions underpin the INR.
- The preliminary Indian and US PMI reports for February will be the highlights later on Friday.
The Indian Rupee (INR) gains ground on Friday after reaching a one-week high in the previous session. The massive US Dollar (USD) sales by foreign banks provide some support to the local currency. US President Donald Trump's optimistic comments on a fresh trade deal with China, not only lift the Chinese Yuan but also boost the INR. Any significant depreciation of the Indian Rupee might be limited amid the likely intervention by the Reserve Bank of India (RBI).
Nonetheless, Foreign Portfolio Investment (FPI) outflows and the renewed Greenback demand could weigh on the local currency. The recovery in crude oil prices might also contribute to the INR’s downside as India is the world's third-largest oil consumer.
Traders await the advanced India’s HSBC Purchasing Managers Index (PMI) report for February, which is due later on Friday. On the US docket, the S&P Global PMI, Existing Home Sales and Michigan Consumer Sentiment Index report will be released. Also, the Federal Reserve’s (Fed) Mary Daly and Philip Jefferson are set to speak on the same day.
Indian Rupee strengthens amid easing trade tensions
- India's growth is estimated to slow to 6.4% in 2025 from 6.6% in 2024, as new US tariffs and softening global demand weigh on exports, said Moody's Analytics on Thursday.
- US President Donald Trump said on Wednesday he will announce fresh tariffs within the next month, adding lumber and forest products to previously announced plans to impose duties on imported cars, semiconductors and pharmaceuticals.
- The US Initial Jobless Claims for the week ending February 15 rose to 219,000, compared to the previous week's 214,000 (revised from 213,000), according to the US Department of Labor (DoL) on Thursday. This figure came in above the market consensus of 215K.
- Fed Board Governor Adriana Kugler said late Thursday that US inflation still has "some way to go" to reach the central bank's 2% target and that its path toward that goal continues to be bumpy.
- St. Louis Fed President Alberto Musalem said the risk of inflation could remain high, adding that he needs confidence that inflation is waning to support more rate cuts.
USD/INR bulls take a breather
The Indian Rupee trades on a stronger note on the day. The USD/INR pair paints the positive picture on the daily chart, with the price holding above the key 100-day Exponential Moving Average (EMA). However, further consolidation or downside cannot be ruled out as the 14-day Relative Strength Index (RSI) stands below the midline near 48.0.
The immediate resistance level for USD/INR emerges at the 87.00 psychological level. Bullish candlesticks and sustained trading above this level could set its sights on an all-time high near 88.00, en route to 88.50.
On the flip side, if the pair can’t hold the line at 86.35, the low of February 12, a drop toward 86.14, the low of January 27, could be on the cards. The next contention level to watch is 85.65, the low of January 7.
Indian Rupee FAQs
The Indian Rupee (INR) is one of the most sensitive currencies to external factors. The price of Crude Oil (the country is highly dependent on imported Oil), the value of the US Dollar – most trade is conducted in USD – and the level of foreign investment, are all influential. Direct intervention by the Reserve Bank of India (RBI) in FX markets to keep the exchange rate stable, as well as the level of interest rates set by the RBI, are further major influencing factors on the Rupee.
The Reserve Bank of India (RBI) actively intervenes in forex markets to maintain a stable exchange rate, to help facilitate trade. In addition, the RBI tries to maintain the inflation rate at its 4% target by adjusting interest rates. Higher interest rates usually strengthen the Rupee. This is due to the role of the ‘carry trade’ in which investors borrow in countries with lower interest rates so as to place their money in countries’ offering relatively higher interest rates and profit from the difference.
Macroeconomic factors that influence the value of the Rupee include inflation, interest rates, the economic growth rate (GDP), the balance of trade, and inflows from foreign investment. A higher growth rate can lead to more overseas investment, pushing up demand for the Rupee. A less negative balance of trade will eventually lead to a stronger Rupee. Higher interest rates, especially real rates (interest rates less inflation) are also positive for the Rupee. A risk-on environment can lead to greater inflows of Foreign Direct and Indirect Investment (FDI and FII), which also benefit the Rupee.
Higher inflation, particularly, if it is comparatively higher than India’s peers, is generally negative for the currency as it reflects devaluation through oversupply. Inflation also increases the cost of exports, leading to more Rupees being sold to purchase foreign imports, which is Rupee-negative. At the same time, higher inflation usually leads to the Reserve Bank of India (RBI) raising interest rates and this can be positive for the Rupee, due to increased demand from international investors. The opposite effect is true of lower inflation.