The Indian rupee (INR) has been on a downward trend for four days in a row against the US dollar (USD) as of Tuesday. The USD/INR exchange rate is approaching its all-time high of 91.55, even while the US dollar faces pressure due to a growing conflict between the US and the Eurozone regarding Greenland’s future.
This rise of the USD/INR is largely due to persistent demand for the US dollar from Indian importers. A report from Reuters highlights that this heightened demand from importers is a significant factor affecting the exchange rate.
Indian importers continue to seek US dollars, largely because a trade deal between the US and India has yet to be announced. Negotiators from both nations have expressed optimism for over six months about finalizing an agreement, but progress remains stalled.
The current standoff in US-India trade has notably impacted foreign investor interest in the Indian stock market. Foreign institutional investors (FIIs) have been selling off shares consistently for more than six months, with sales reaching Rs 100 crore this January alone.
Daily Digest Market movers: US dollar declines further due to US-EU dispute
- Despite rising tensions between the US and EU, the US dollar continues to gain strength against the waning Indian rupee. At the moment, the US Dollar Index (DXY) is down about 0.5% at roughly 98.50.
- The appeal of US assets faces challenges due to an escalating trade war linked to ownership disputes over Greenland.
- Recently, US President Donald Trump imposed a 10% tariff on various European Union (EU) countries and the UK, effective February 1. He has warned that these tariffs could escalate to 25% if the EU resists his plans for Greenland.
- This move has drawn criticism from EU leaders and UK Prime Minister Keir Starmer, who have called out Trump’s use of tariffs to pressure Europe into compliance.
- The fallout from this conflict has contributed to a weaker US dollar, while the euro (EUR) has benefited from an uptick in demand as a substitute for the dollar. However, some analysts at Société Générale caution that this trend may not hold, given that Europe exports more to the US than it imports.
- In the domestic market, traders seem confident that the Federal Reserve will maintain current interest rates during its impending policy meeting.
- Moreover, Fed Vice Chair Michelle Bowman recently indicated that the Fed needs to quickly adjust interest rates to neutral levels to curb rising employment risks.
Technical Analysis: USD/INR remains solid above 20-day EMA
On the daily chart, the USD/INR pair is trading at 91.2570. The 20-day Exponential Moving Average (EMA) is on a steep incline and sits below the current price at 90.4727, reinforcing the upward trend.
The 14-day Relative Strength Index (RSI) is measuring at 67.67, nearing the overbought threshold and indicating strong bullish momentum.
As long as the exchange rate holds above the 20-EMA, an upward trend is anticipated, with support expected around the 90.4727-90.3268 range. An overbought RSI could validate this trend, while a pullback from these levels may bring about a consolidation period.
