The Indian Rupee (INR) faced a downturn on Wednesday, retreating after experiencing its most significant monthly rise in over six years, fueled by a weaker US Dollar and a surge in foreign investments in Indian equities. Analysts suggest that the INR’s near-term outlook will largely hinge on US President Donald Trump’s expected announcement of reciprocal tariffs on major trading partners, set for Wednesday. Traders are keenly awaiting how these tariffs could influence global trade and economic growth.
Looking ahead, market participants are preparing for Trump’s announcement on reciprocal tariffs, while also awaiting the US March ADP Employment Change report. Remarks from Federal Reserve (Fed) officials throughout the week are expected to further impact market sentiment.
The Reserve Bank of India (RBI) is scheduled to announce its interest rate decision next week. According to a Reuters poll of economists, only one additional rate cut is anticipated in August, which would mark the shortest easing cycle in the RBI’s history. This could put additional pressure on the INR, potentially adding to its downward movement.
INR Faces Vulnerability Amid Trade Uncertainty
The Indian Rupee has benefited recently from a weaker US Dollar and the Reserve Bank of India allowing for two-way currency movements. However, analysts warn that risks to India’s external sector persist, particularly with the ongoing uncertainties surrounding US trade and tariff policies. Kotak Institutional Equities highlighted that while the INR has gained from recent dollar weakness, the looming trade tensions remain a significant concern.
President Trump’s announcement of reciprocal tariffs could introduce new trade barriers for countries that impose tariffs on US goods, further complicating global trade dynamics. The White House confirmed that these tariffs will take effect immediately following Wednesday’s announcement.
US Treasury Secretary Scott Bessent stated late Tuesday that the tariffs announced would represent the highest rates but left open the possibility of future adjustments. Meanwhile, the US ISM Manufacturing Purchasing Managers Index (PMI) for March fell to 49.0, missing expectations and signaling a potential slowdown in the manufacturing sector.
Technical Outlook: USD/INR Remains Bearish
The Indian Rupee weakened further against the US Dollar, with the USD/INR pair maintaining a bearish tone, as evidenced by its position below the key 100-day Exponential Moving Average (EMA) on the daily chart. The 14-day Relative Strength Index (RSI) remains under the midline at 32.90, indicating continued downside pressure.
Immediate support for the pair is seen around the psychological 85.00 level, with further downside targets at 84.84 (the December 19 low) and 84.22 (the November 25, 2024 low). On the upside, resistance is positioned in the 85.90-86.00 zone, with the 100-day EMA and the round 86.00 mark serving as key levels to watch. Should momentum shift upward, the next resistance levels to monitor are at 86.48 (the February 21 low) and 87.00.
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