USD/INR rises significantly at the start as global trade concerns increase

Market Overview: Indian Rupee and Global Trade Developments

The Indian rupee has weakened against the US dollar due to disappointing CPI data and a prevailing risk-off sentiment in the market.

Trump is set to impose 30% tariffs on imports from the EU and Mexico.

Investors are closely monitoring the upcoming US CPI data for June.

The Indian rupee (INR) experienced a decline against the US dollar (USD) at the start of the week, trading nearly at 86.15. This shift comes as the broader market indicates caution, particularly following unexpected drops in soft consumer price index (CPI) and June Wholesale Price Index (WPI) inflation figures.

Data from the Ministry of Statistics shows that CPI growth was recorded at a modest 2.1%, lagging behind the previous month’s growth of 2.5% and 2.82%. This marks the fifth consecutive month where inflation remains below the Reserve Bank of India’s (RBI) target of 3.7%, which was established during the June policy meeting after earlier interest rate cuts.

In another surprising turn, the WPI report revealed a yearly decrease of 0.13% in producer-level inflation. Analysts had anticipated a rise of around 0.52%, compared to May’s figure of 0.39%. The decline can largely be attributed to falling food and energy prices.

This lackluster inflation data is amplifying market expectations that the RBI may consider further interest rate cuts in the next policy meeting.

Daily Digest: Indian Rupee Trends and CPI Focus

The Indian rupee is likely to see lower trading levels against the US dollar as demand for safe assets has surged, particularly following President Trump’s announcements regarding import tariffs on major trading partners, the EU and Mexico.

As of now, the US Dollar Index (DXY) is trading at approximately 98.00, reflecting its strongest position in more than two weeks.

Over the weekend, President Trump reignited trade tensions by notifying the EU and Mexico of the new 30% tariff, separate from other sector-specific taxes, and warned that additional tariff increases could prompt retaliatory actions.

This announcement has led to a significant downturn in high-risk assets, with US stock futures showing losses on Friday, highlighting the cautious mood in the market, which has negatively impacted risk-sensitive currencies like the Indian rupee.

Last week, Trump also announced varying tariffs: 25% on Japan, 35% on Canada, and 50% on copper imports.

On the domestic front, all eyes are on the June CPI data set to be released on Tuesday. Analysts predict this report will reveal increased price pressures, which could deter Federal Reserve officials from lowering interest rates in September. Currently, there’s about a 62.8% chance the Fed may cut rates during that meeting.

The uncertainty surrounding US-India trade relations keeps the Indian rupee on edge. Trump has often stated that a trade deal with India is on the horizon but has not finalized any agreements.

However, a recent Bloomberg report suggested the South Asian nation might avoid a tariff notice, which has sparked some optimism among investors regarding potential trade advancements.

Additionally, the Bloomberg report indicated that tariffs on India could be under 20%, positioning the country favorably compared to its competitors like Vietnam and Bangladesh, which face higher tariffs. Given India’s significant exports in textiles and apparel to the US, lower tariffs could enhance its competitive edge.

Technical Analysis: USD/INR Trends

The USD/INR pair may revisit a two-week high on Monday, hovering around 86.15. The short-term outlook appears bullish, especially with key support found at the 20-day exponential moving average (EMA) near 85.90.

The 14-day relative strength index (RSI) remains in the 40.00-60.00 range, signaling a lack of momentum in either direction.

Should the value decline, significant support is anticipated at the May 27 low of 85.10, while the June 24 low of 86.42 presents a notable resistance point for the pair.