The Indian Rupee (INR) softened on Tuesday, retreating from a three-week high reached in the previous session, as persistent capital outflows and renewed tariff threats from US President Donald Trump weighed on the local currency.
Tariff Concerns and Capital Outflows Pressure Rupee
The INR faced selling pressure as market sentiment soured following Trump’s announcement of additional tariffs on Chinese imports. The move sparked fears of a broader global trade war, prompting investors to pull capital from emerging markets, including India.
However, the Reserve Bank of India’s (RBI) foreign exchange interventions helped cushion the Rupee against steep losses. The RBI’s net short dollar position in forwards and futures surged to a record $77.5 billion in January 2025, signaling the central bank’s ongoing efforts to stabilize the currency.
Oil Price Decline Offers Limited Support
The Rupee’s depreciation was partially offset by falling crude oil prices after reports indicated that OPEC+ would proceed with a planned output increase in April. As the world’s third-largest oil importer, India benefits from lower oil prices, which ease inflationary pressures and reduce the country’s import bill.
Mixed Domestic and Global Economic Data
India’s Manufacturing PMI fell to a 14-month low of 56.3 in February, down from January’s reading of 57.1, according to S&P Global. Despite the slowdown, analysts noted that overall momentum in India’s manufacturing sector remained positive.
On the global front, the US ISM Manufacturing PMI dropped to 50.3 in February, falling short of market expectations and adding to concerns about the US economy. Meanwhile, investors are closely watching comments from Federal Reserve officials later on Tuesday for insights into the central bank’s future policy direction.
Technical Outlook: Bullish Bias Intact
The USD/INR pair maintained a bullish undertone, trading above the key 100-day Exponential Moving Average (EMA) on the daily chart. The 14-day Relative Strength Index (RSI) remained above the midline at 61.00, signaling that buyers retained control.
If the bullish momentum persists, USD/INR could retest the February 28 high of 87.53. A decisive break above this level could propel the pair toward the all-time high near 88.00, with further upside potential toward 88.50.
Conversely, a break below the 87.05-87.00 support zone might trigger a decline toward the February 21 low of 86.48, followed by the January 27 low of 86.14.
Investors will closely monitor India’s HSBC Composite PMI and Services PMI, set for release on Wednesday, for further clues on the country’s economic outlook.
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