- Indian Rupee may regain its ground due to expected progress on a US-India trade agreement.
- USD/INR’s downside could be restrained due to importer hedging demand and potential RBI dollar-buying interventions.
- The INR may struggle due to improved crude oil prices, driven by OPEC+’s decision to ramp up production more quickly.
The Indian Rupee (INR) edges lower against the US Dollar (USD) during the Asian hours on Tuesday. However, the USD/INR pair may continue to encounter resistance as the INR gains support from certain market factors. Investors are closely watching the Federal Reserve’s policy decision, along with any progress on a US-India trade agreement and ongoing cross-border tensions.
The Indian Rupee drew support from strong equity inflows amounting to ₹2,769.81 crore. Furthermore, the recent launch of a new 10-year government bond with a 6.33% coupon saw solid demand and met market expectations. This favorable response may encourage additional foreign investment, further strengthening the Rupee.
The downside for the USD/INR pair may be capped by importer hedging demand and potential dollar-buying interventions by the Reserve Bank of India (RBI). The central bank is expected to continue bolstering its foreign exchange reserves, which have risen for the eighth straight week, reaching a more than six-month high of $688 billion as of April 25.
Additionally, the continued recovery in crude Oil prices puts downward pressure on the INR as India is the world’s third-largest Oil consumer. However, Oil gains were capped by concerns over rising global supply following an OPEC+ decision to accelerate output increases. Last week, OPEC+, the Organization of the Petroleum Exporting Countries and its allies, agreed to ramp up production for a second straight month, announcing an additional 411,000 barrels per day (bpd) increase for June.
Indian Rupee advances as US Dollar appreciates ahead of Fed policy decision
- The US Dollar Index (DXY), which measures the US Dollar (USD) against a basket of six major currencies, is rebounding after two consecutive sessions of losses, trading near 99.80 at the time of writing.
- The US Dollar is strengthening ahead of the Federal Reserve’s (Fed) monetary policy announcement on Wednesday. While the Fed is widely expected to keep interest rates unchanged, markets are closely watching Chair Jerome Powell’s comments, particularly amid tariff-related uncertainty and mounting pressure from President Donald Trump for rate cuts.
- On the trade front, Treasury Secretary Scott Bessent stated Monday that the US is “very close to some deals,” echoing Trump’s weekend remarks suggesting progress in trade negotiations. However, Trump ruled out a meeting with Chinese President Xi Jinping this week. China’s Commerce Ministry said on Friday it is reviewing a US proposal to resume talks.
- US economic data showed strength in the services sector: the ISM Services PMI rose to 51.6 in April, beating forecasts of 50.6 and up from 50.8 in March. The New Orders Index increased to 52.3 from 50.4, while the Services Employment Index rose to 49 from 46.2.
- Traders anticipate India’s 10-year government bond yield to remain in the 6.30%–6.40% range this week, with attention centered on bond purchases and geopolitical developments between India and Pakistan.
- The recent decline in yields is driven by expectations of further rate cuts and the Reserve Bank of India (RBI) maintaining surplus liquidity in the banking system through ongoing open market operations (OMOs), according to Reuters.
- This week, the RBI plans to purchase bonds worth ₹750 billion ($8.88 billion), with two additional rounds of ₹250 billion each scheduled later this month. Year-to-date, the central bank has acquired ₹3.65 trillion in bonds via OMOs and ₹388 billion through secondary market purchases. This unexpected liquidity injection is likely to aid policy transmission and boost growth amid global uncertainties, said Radhika Rao, executive director and senior economist at DBS Bank.
- Escalating tensions between India and Pakistan could weigh on the Indian Rupee. On Saturday, Pakistan’s military announced it had carried out a training launch of a surface-to-surface missile with a 450-kilometer range. Meanwhile, New Delhi has accused Islamabad of supporting a recent attack on tourists in Kashmir.
USD/INR may retest descending channel’s lower boundary near 84.00
The Indian Rupee remains steady, with the USD/INR pair trading near 84.20 on Tuesday. Technical analysis of the daily chart indicates a continued bearish bias, as the pair trends lower within a descending channel pattern.
On the downside, the USD/INR pair may test support near the lower boundary of the descending channel around 84.10. A decisive break below this level could deepen the bearish momentum, potentially driving the pair toward the eight-month low of 83.76.
To the upside, initial resistance lies at the nine-day Exponential Moving Average (EMA) near 84.70. A breakout above this level could strengthen short-term bullish momentum, opening the path toward the channel’s upper boundary near 86.20, with further resistance at the two-month high of 86.71.
USD/INR: Daily Chart
RBI FAQs
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.
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.
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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