USD/INR holds steady ahead of Indian PMI data
- The Indian Rupee trades flat in Wednesday’s early Asian session.
- Renewed USD demand and persistent outflows by foreign institutional investors could undermine the INR.
- India’s HSBC PMI and US ISM Services PMI will be the highlights later on Wednesday.
The Indian Rupee (INR) flat lines on Wednesday. The rising US Dollar (USD) buying by foreign banks and Indian importers, especially local oil companies, might exert some selling pressure on the local currency. Furthermore, the ongoing foreign outflows amid increasing global trade tensions could drag the INR lower. Foreign investors have pulled over $14 billion from Indian equities in 2025.
On the other hand, Crude oil prices are trading near the lowest in almost three months as OPEC+ said it will proceed with a plan to increase oil production from April. This, in turn, could help limit the INR’s losses as India is the world's third-largest oil consumer.
Later on Wednesday, investors will brace for India’s HSBC Composite Purchasing Managers Index (PMI) and Services PMI. On the US docket, the ISM Services PMI will take center stage.
Indian Rupee steadies despite escalating global trade tensions
- 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.
- President Donald Trump's 25% tariffs on goods from Canada and Mexico took effect Tuesday, along with a doubling of duties on Chinese goods to 20%.
- US Commerce Secretary Howard Lutnick hinted that Trump may be preparing to pivot on his own tariffs less than 48 hours after imposing them.
- New York Fed President John Williams said late Tuesday that although inflationary pressures have eased and the US labor market appears strong, the US central bank will have to take a close look at the fallout from the US tariff actions.
USD/INR’s constructive outlook remains in place
The Indian Rupee trades on a flat note on the day. The USD/INR pair keeps the bullish vibe on the daily chart as the price holds above the key 100-day Exponential Moving Average (EMA). The 14-day Relative Strength Index (RSI) is located above the midline near 60.00, suggesting that the path of least resistance is to the upside.
The first upside barrier for USD/INR emerges at 87.53, the high of February 28. Further north, the next hurdle to watch is an all-time high near 88.00, en route to 88.50.
In the bearish case, the 87.05-87.00 zone acts as a crucial support level for the pair. A breach of this level could expose 86.48, the low of February 21, followed by 86.14, the low of January 27.
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.
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