The Indian Rupee Strengthens Against the Dollar

• The Indian rupee has gained significantly against the US dollar ahead of the June US non-farm payroll (NFP) data release.
• The US NFP figures hold substantial influence over market sentiments regarding the Federal Reserve’s monetary policy direction.
• Foreign institutional investors (FIIs) sold Indian equities worth Rs. 3,531.76 crores in the early days of July.

On Thursday during the European trading session, the Indian rupee (INR) is expected to surge against the US dollar (USD). The USD/INR exchange is anticipated to hit fresh monthly lows around 85.40 as the dollar retracts following the imminent release of the US NFP data for June at 12:30 GMT.

Analysts predict that the NFP report will indicate the addition of 110,000 jobs in May, a decline from the previous figure of 139,000. Furthermore, the unemployment rate is projected to rise to 4.3% from the earlier 4.2%.

Market participants are keenly watching the average hourly earnings data, which is a crucial indicator of wage growth. Monthly wage increases are expected to slow to 0.3%, compared to 0.4% in May.

Investors are closely monitoring the upcoming NFP figures, as a Federal Reserve official suggested it might support interest rate cuts at the July policy meeting, particularly due to concerns regarding the labor market’s robustness.

“The Fed shouldn’t wait for a significant downturn in the job market to cut rates,” said Fed Governor Christopher Waller in a recent interview.

On another note, the ADP employment data indicated some softness in the labor market, showing a decline in private sector employment for the first time during the pandemic period. The report noted a loss of 33,000 jobs in June, despite an expectation of 95,000 jobs being added. May’s figures were also revised down from 37,000 to 29,000.

“Although layoffs are still relatively rare, last month’s hesitance to hire suggests a certain reluctance among companies,” commented ADP’s chief economist, Nela Richardson.

Market Update: Indian Rupee Surpasses the Dollar

• The Indian rupee is performing well against major peers amid speculation that India and the US may finalize trade agreements before the tariff deadline. Reports suggest announcements could arrive within “48 hours” during Asian trading hours.
• The negotiations aim to reduce trade barriers, though Indian manufacturers might face stiff competition from US firms.
• Comments from President Trump indicated that a new deal would help American businesses enter the Indian market. “I think we’re going to do business with India. The nature of this deal will be different,” he said.
• However, FIIs have adopted a wary stance ahead of the US tariff policy deadline on July 9, resulting in a sell-off of Rs. 3,531.76 crores of Indian shares.
• Concerns regarding mutual customs policies due to the approaching deadline are keeping investors on the fence. While analysts are trying to gauge the possible effects on the global economy, the US is negotiating new deals with other key partners, including a deal with Vietnam.
• Trump’s “big beautiful bill,” which has drawn attention in the Senate, raises worries about escalating national debt. Experts believe it could push the US debt to $40 trillion over the next decade, possibly leading to further downgrades of US sovereign credits.
• If the bill passes the House, it will advance to the president for approval.

Technical Analysis: USD/INR Hits Monthly Lows

The USD/INR pair is expected to drop to around 85.40 following a break below the recent trading range of 85.56 to 86.00. This trend seems bearish as it’s under the 20-day exponential moving average (EMA).

The 14-day relative strength index (RSI) is below 50.00, indicating a negative trend. Key support for the majors is at the 200-day EMA, near 85.35, while the previous high of 86.13 presents a significant hurdle for the currency pair.