The Indian Rupee (INR) edged higher in Wednesday’s Asian session, trading with a modest positive bias against the US Dollar (USD). The movement in the USD/INR currency pair comes amid heightened anticipation of critical Purchasing Managers’ Index (PMI) releases from both India and the United States, with broader market sentiment shaped by global macroeconomic dynamics. 

This article showcases a well-structured review of the topic by  Raliplen brokers.

Weaker US Dollar and Foreign Inflows Support INR

A softer US Dollar has played a pivotal role in providing short-term support to the Indian Rupee. Recent downbeat US economic data has led to a pullback in the greenback, making way for minor gains in emerging market currencies. 

Specifically, foreign portfolio inflows into Indian equities and debt are adding to INR strength, as global investors seek relatively resilient markets. According to BofA Securities, India is poised to be among the top three Asian markets to attract foreign inflows, especially once tariff-related uncertainties begin to ease. 

David Hauner, head of emerging markets strategy at BofA, emphasized that India stands out in Asia with strong macroeconomic drivers, including robust domestic demand, an expanding manufacturing base, and continued policy reforms.

Crude Oil Prices Pose Risk to INR Upside

Despite supportive inflows and a weaker dollar, the uptrend in crude oil prices could act as a significant drag on the Indian currency. India, as the third-largest global importer of crude, faces a deteriorating trade balance and rising import bills when oil prices climb. This increases foreign exchange demand, often pressuring the INR lower.

Thus, traders remain cautious, acknowledging that any further escalation in global oil prices could limit gains in the USD/INR downside and potentially trigger renewed upward pressure on the pair.

Key Event Risks: India and US PMI Releases

Wednesday’s trading session will be shaped by the release of India’s HSBC Composite and Services PMI for May, alongside the US ISM Services PMI. These releases will provide fresh insight into the health of the services sectors, which form a substantial part of both economies.

India’s services sector performance, gauged through expansionary PMI readings, could further reinforce investor confidence in the country’s economic trajectory. Conversely, any signs of a slowdown in the US services sector may enhance the US Dollar’s weakness, further lifting the INR.

Also looming on the radar is the Reserve Bank of India’s (RBI) upcoming interest rate decision due Friday. Markets are currently pricing in a third consecutive 25 basis points (bps) rate cut, as the central bank focuses on spurring growth amid a benign inflation outlook.

Indian Economy Forecast: A Promising Outlook

The OECD recently forecast that India’s economy will grow by 6.3% in FY2025–26 and 6.4% in FY2026–27, underpinned by strong investment momentum, digitalization, and infrastructure spending. This positive long-term view has reinforced India’s appeal as a destination for foreign direct investment (FDI) and portfolio capital, further solidifying INR’s medium-term outlook.

Additionally, tariff-related developments, particularly those tied to the US-China trade relationship and any changes under the US Administration, will play a role in shaping global investor positioning and trade balances that affect USD/INR flows.

US Labor Market Remains Resilient

The latest US JOLTS report showed that job openings rose to 7.39 million in April, exceeding market forecasts of 7.1 million. This continued strength in the US labor market complicates the Federal Reserve’s monetary policy path, especially as policymakers balance inflation risks with economic growth concerns.

While the job market shows resilience, Fed policymakers, including Lisa D. Cook and Austan Goolsbee, have expressed concern over lingering threats from trade policies and tariff impacts, signaling a wait-and-see approach on rate adjustments.

Technical Analysis: Key Levels in Focus for USD/INR

From a technical standpoint, the USD/INR pair is hovering near the 100-day Exponential Moving Average (EMA) on the daily chart, a level currently acting as dynamic resistance. A decisive break above the 100-day EMA could pave the way for a resumption of the upward trend, especially if coupled with a favorable macroeconomic backdrop.

The 14-day Relative Strength Index (RSI) sits just above the midline at 55.0, indicating that bullish momentum is intact but not overextended.

Outlook

As traders await PMI data from both India and the US, the USD/INR pair remains sensitive to a broad mix of factors, including oil price movements, economic surprises, central bank outlooks, and global risk sentiment. While short-term INR strength is underpinned by USD weakness and capital inflows, headwinds like elevated crude prices and global volatility could quickly reverse the tide.

For now, market participants will look to the RBI decision, the US employment report, and the PMI readings for immediate directional cues. As always, traders should maintain a nimble approach, watching both technical indicators and macroeconomic triggers closely in the evolving USD/INR landscape.