Key Takeaways
- The Indian Rupee (INR) weakened against the US Dollar (USD) early Thursday, influenced by renewed US-China trade tensions.
- Reports suggest the US and India are nearing a trade deal, which could benefit the INR by reducing import duties and India’s crude oil imports from Russia.
- Foreign Institutional Investors (FIIs) have shown renewed buying interest in Indian equities in October, reversing outflows from the previous quarter.
- US markets await the delayed September Consumer Price Index (CPI) data, crucial for gauging the Federal Reserve’s next monetary policy moves.
- Technically, USD/INR faces resistance near its 50-day Exponential Moving Average (EMA), while support is seen at the August low.
USD/INR Opens Lower Amid Global Trade Uncertainty
The Indian Rupee (INR) experienced depreciation against the US Dollar (USD) on Thursday, following a brief closure of Indian markets for holidays. The USD/INR pair edged higher, approaching the 88.10 mark. This movement occurred as the US Dollar regained strength after a minor correction on Wednesday, even amidst rekindled trade concerns between the United States and China.
During early Asian trading, the US Dollar Index (DXY), a measure of the Greenback’s value against a basket of six major currencies, saw a modest increase of 0.15%, trading near 99.00.
Escalating US-China Trade Tensions
Uncertainty surrounding US-China trade relations intensified following a Reuters report indicating the White House’s intention to restrict the export of critical software from November 1. This development comes just ahead of a scheduled meeting between US Treasury Secretary Scott Bessent and Chinese Vice Premier He Lifeng in Malaysia this weekend. Discussions were expected to cover various bilateral issues, including recent export controls on rare earth minerals by Beijing and additional 100% tariffs imposed by Washington.
Further discussions are anticipated later this month when US President Donald Trump and Chinese leader Xi Jinping are slated to meet in South Korea. President Trump has previously expressed optimism about reaching a trade agreement during this high-level engagement.
Market Movers and Investor Sentiment
💡 The Indian Rupee weakened against the US Dollar, despite recent reports suggesting a potential trade agreement between the US and India. A Mint report indicated that the US might lower import duties on goods from India to 15%-16% from the current 50%. Additionally, India is reportedly planning to gradually reduce its seaborne crude oil imports from Russia, a factor that has contributed to trade tensions.
✅ A favorable trade deal between the US and India could provide significant support to the Indian Rupee, which has underperformed its peers due to ongoing trade frictions.
📊 Foreign Institutional Investors (FIIs) have demonstrated a renewed appetite for Indian equities in October. After substantial outflows during the July-September period, overseas investors have become net buyers over the past five trading days, injecting approximately ₹2,262.08 crores into the Indian stock market. Year-to-date in October, FIIs have purchased Indian shares worth ₹300.41 crores.
⚡ The gradual return of foreign capital into Indian markets suggests that overseas investors are not significantly bearish on the equity market’s future outlook. Indian stock exchanges opened positively after the recent holidays, with the Nifty 50 index jumping 0.8% to reach a yearly high near 26,080, largely driven by gains in technology stocks.
US Economic Data and Federal Reserve Outlook
📍 In the United States, market participants are keenly awaiting the delayed September Consumer Price Index (CPI) data, scheduled for release on Friday. The delay is attributed to the ongoing US government shutdown. This inflation report is considered a critical factor that will influence market expectations regarding the Federal Reserve’s (Fed) future monetary policy decisions.
📊 Economists forecast that the US headline inflation rate likely accelerated to 3.1% on an annualized basis in September, an increase from the previous reading of 2.9%. Core inflation figures are also expected to show steady growth at 3.1%.
📌 Ahead of the US inflation data, the CME FedWatch tool indicates a high degree of confidence among traders that the Fed will implement another 25 basis points (bps) interest rate cut at its policy meeting later this month.
Technical Analysis of USD/INR
The USD/INR currency pair opened higher on Thursday, hovering around the 88.05 level. The 50-day Exponential Moving Average (EMA), situated near 88.13, is currently acting as a significant resistance level for the pair’s upward movement.
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The 14-day Relative Strength Index (RSI) is trading near the 40.00 mark. A sustained decline below this level could signal the emergence of fresh bearish momentum.
Looking at the downside, the low recorded on August 21 at 87.07 is expected to serve as a crucial support level for the USD/INR pair. Conversely, the 20-day EMA presents a key overhead resistance.
Economic Indicator Spotlight: US Consumer Price Index (CPI)
Consumer Price Index (YoY)
The Consumer Price Index (CPI) measures inflationary or deflationary trends by periodically tracking the prices of a representative basket of goods and services. Compiled and released monthly by the US Department of Labor Statistics, the Year-over-Year (YoY) reading compares current month prices to those of the same month in the preceding year.
The CPI is a vital indicator of inflation and shifts in consumer purchasing patterns. Generally, a higher-than-expected CPI reading is considered bullish for the US Dollar (USD), while a lower reading is viewed as bearish.
Final Thoughts
The Indian Rupee’s performance continues to be influenced by global trade dynamics and domestic investor flows. While US-China trade tensions create headwinds, potential US-India trade resolutions and returning FII investment offer support.
Market participants are now focused on key US inflation data, which will likely shape expectations for the Federal Reserve’s upcoming policy decisions, adding another layer of influence on currency movements.
