- The Indian rupee is expected to weaken during the early European session on Tuesday.
- Increased demand for the US dollar and rising oil prices are pressuring the INR.
- Investors are waiting for the US job data to be released later on Tuesday, ahead of the RBI’s forthcoming decision.
The Indian rupee (INR) looks set to decline on Tuesday. The demand for the USD, along with high oil prices, is affecting local currencies. A strategist from Barclays Bank PLC mentioned that although the USD may be under some pressure, the INR is likely to struggle. They noted that the RBI is expected to focus on managing the forward book and replenishing foreign exchange buffers.
On a brighter note, stronger GDP figures from India and capital inflows linked to the rebalancing of Global Equity Indexes might lend some support to the Indian currency. Job numbers in the US are due for release on Tuesday, and there’s keen interest in the Reserve Bank of India’s interest rate decision coming up on Friday. The RBI is expected to implement its third consecutive 25 basis points (BPS) rate cut aimed at stimulating growth.
Indian rupee affected by oil prices
- The Trump administration has asked trading partners to present their best offers by Wednesday to secure transactions by July 8th, according to Reuters.
- India’s GDP saw a 7.4% year-on-year growth in the first quarter of 2025, exceeding the anticipated 6.7% and up from 6.2% in the prior quarter.
- While India is currently the fastest-growing major economy globally, its growth has noticeably slowed from the 9.2% reported for 2023/24.
- According to the Institute for Supply Management (ISM), the US Manufacturing Purchase Manager Index (PMI) dropped from 48.7 in April to 48.5 in May, which is below the expected figure of 49.5.
Bear pressure in USD/INR persists despite slight recoveries
The Indian rupee is likely to weaken on that day. The USD/INR pair continues to hold a negative outlook as prices remain below the 100-day exponential moving average (EMA) on the daily chart. Nevertheless, there’s a possibility of a brief recovery in the short term since the 14-day relative strength index (RSI) is hovering around the midline.
The immediate bearish target for USD/INR is seen around the 85.05-85.00 range, which correlates with the lows and round numbers from May 27th. If the downward pressure intensifies, the pair could revert to the lower mark of 84.61 recorded on May 12th.
In a bullish scenario, significant resistance levels are identified at 85.55-85.60, where the EMA for 100 days converges with the upper boundary of the trend channel. A substantial break above these levels could pave the way for a retest of May 22nd’s high at 86.10.
Indian Rupee FAQ
The Indian rupee (INR) is highly sensitive to external factors. Key influences include crude oil prices—since the country relies on imports—and the value of the US dollar, which dominates trade. Additionally, the Reserve Bank of India’s (RBI) direct interventions in the Forex market and its set interest rates significantly impact the rupee.
The RBI actively steps in to stabilize exchange rates to promote trade. It also aims to control inflation, targeting around 4% by adjusting interest rates. Typically, higher rates bolster the rupee as investors borrow from countries with lower rates to invest in higher returns.
Macroeconomic factors that affect the rupee’s value include inflation, interest rates, GDP growth, trade balance, and foreign investment inflows. Increased economic growth can attract overseas investments, boosting demand for the rupee, while a better trade balance can contribute to its strengthening. Higher real interest rates can also positively affect the currency, especially in a risk-on environment that encourages foreign investment.
Generally, higher inflation negatively affects a currency, particularly if it exceeds inflation rates in peer countries, indicating devaluation risks. It raises the costs of exports and leads to more rupees needed for foreign imports. However, higher inflation often prompts the RBI to raise interest rates, which could benefit the rupee by attracting international investors. The impact of lower inflation tends to be the opposite.
