- The Indian rupee is declining against the US dollar following comments from the US president regarding India’s import tariffs.
- Trump has suggested a possible import tax of 20%-25% on goods from India.
- Investors are eagerly awaiting the Federal Reserve’s monetary policy decisions along with key US economic data.
The Indian Rupee (INR) is expected to dip further against the US dollar (USD) when markets open on Wednesday, likely hitting around 87.30. The USD/INR exchange rate is projected to favor the US dollar more as the Indian rupee continues its downward trend. This comes on the heels of comments from President Donald Trump, who mentioned that exports from India might be subjected to tariffs between 20% and 25%.
On Tuesday, Trump responded to a question from a reporter, saying, “I think so,” regarding the potential for these tariffs on Indian imports.
This kind of scenario doesn’t bode well for the Indian rupee, especially since the proposed tariff rate from President Trump is considerably higher compared to what he has agreed upon with other countries like Indonesia, Vietnam, Japan, and the European Union (EU). If import duties on Indian goods rise, it may hamper the competitiveness of India’s exports in the global market.
Moreover, Trump pointed out that the tariffs India imposes on imports from the US are much higher than those from other nations.
The Indian rupee is underperforming this week, largely due to aggressive selling by foreign institutional investors (FIIs) in the Indian stock market. So far, FIIs have offloaded shares worth Rs. 41,227.73 crore. On Tuesday, there was an additional outflow of Rs. 4,636.60 crore by foreign portfolio investors in the cash market.
This pronounced weakness in the rupee against the US dollar might trigger the Reserve Bank of India (RBI) to step into the foreign exchange market. Reuters has reported that the central bank is likely to sell US dollars to curb the rupee’s depreciation.
Daily Digest Market Mover: Indian Rupee continues to struggle against the US dollar
- The announcement of tariff agreements between the US and the European Union (EU) has contributed to the strength of the USD/INR pair.
- This weekend, officials on both sides approved trade agreements, easing concerns about disruptions in global trade.
- Investors are also focusing on the Federal Reserve (FED) monetary policy announcement scheduled at 18:00 GMT. According to the CME FedWatch tool, the Fed is likely to keep interest rates stable in the range of 4.25% to 4.50%, marking the fifth consecutive meeting without a change.
- With the Fed expected to maintain its current stance, key considerations for the US dollar will include guidance on inflation and forecasts for interest rates for the remainder of the year.
- Recently, several Fed officials have warned that the tariffs imposed by the US president are beginning to affect prices, which diminishes the likelihood of immediate monetary policy adjustments. Concerns about renewed price pressures have heightened after the June Consumer Price Index (CPI) report indicated a rise in prices for many imported goods.
- During Wednesday’s session, investors will also look ahead to the release of second quarter Gross Domestic Product (GDP) and Personal Consumption Expenditure (PCE) data at 12:30 GMT.
Technical Analysis: USD/INR trades near a 20-day EMA
The USD/INR exchange rate is approaching a new four-month high, hovering around 87.30 on Wednesday. The pair is exhibiting a strong upward trend, with the 20-day exponential moving average (EMA) positioned around 86.45.
Currently, the 14-day relative strength index (RSI) is fluctuating between 60.00 and 80.00, indicating strong bullish momentum.
Support for the major levels is found at the 20-day EMA, while the February 28 high of approximately 87.70 poses a significant barrier for the pair.
