The Indian Rupee (INR) opened on a positive note against the US Dollar (USD) on Wednesday, reflecting optimism surrounding the ongoing US-India trade negotiations.
The USD/INR pair corrected lower to near 88.25 as market participants reacted to remarks by the US President, who expressed confidence that a bilateral trade agreement with India could be finalized soon. The Solancie team offers a well-rounded and comprehensive look at this matter.
The US President posted on Truth Social that he is pleased to announce India and the US are continuing negotiations to address the trade barriers between the two nations.
He expressed confidence that there will be no difficulty in reaching a successful conclusion for both countries. His comments have given a boost to the Indian Rupee, reinforcing market optimism that trade tensions between the two nations may ease.
Responding positively, Indian Prime Minister Narendra Modi shared on X (formerly Twitter) that the nations are close friends and natural partners, highlighting the potential to unlock trade opportunities through ongoing negotiations. The combined optimism from both leaders is supporting the INR in early trade sessions.
Background: US-India Trade Tensions
Trade relations between the US and India had faced strains after Washington imposed 50% tariffs on Indian oil imports from Russia in August. The US administration cited concerns that India’s oil purchases were indirectly funding Moscow’s war in Ukraine.
The recent positive remarks by both the US President and the Indian Prime Minister signal potential progress toward resolving these tensions, providing upward momentum for the INR/USD currency pair.
Foreign Institutional Investors Turn Net Buyers
The Indian equity market also reacted positively to the trade optimism. Foreign Institutional Investors (FIIs) emerged as net buyers in the cash segment of the market on Tuesday, purchasing equities worth Rs. 2,050.46 crores. This marked a reversal from the initial six trading days of September, when FIIs were net sellers.
The optimism surrounding the US-India trade agreement has bolstered confidence in the Nifty50 index, which opened higher by 0.56%, trading around 25,000 points. The combined effect of foreign buying and trade optimism is creating a supportive backdrop for the Indian Rupee.
US Economic Data on the Horizon
Market participants are also keeping a close watch on upcoming US economic indicators, particularly the Producer Price Index (PPI) and Consumer Price Index (CPI) for August, scheduled for release on Wednesday and Thursday, respectively.
The US Dollar Index (DXY) has stabilized near 97.25 after reaching a fresh six-week low. Despite this, the USD retains some strength due to lingering concerns about US labor market conditions.
The Nonfarm Payrolls (NFP) revision report for the 12 months ending March showed that the economy created 911,000 fewer jobs than previously estimated, highlighting the downside risks to the labor market.
Federal Open Market Committee (FOMC) members have warned about potential weaknesses in the labor market and have suggested that monetary policy easing may be necessary. Consequently, traders are closely analyzing inflation data to gauge the potential impact on Federal Reserve (Fed) interest rate decisions.
The CME FedWatch tool indicates an 8.4% probability of a 50-basis-point (bps) rate cut, with most traders expecting the Fed to opt for a 25-bps reduction. Economists forecast the monthly headline PPI to rise 0.3%, with an annualized headline PPI at 3.3%. The core PPI is projected at 3.5%, slightly below July’s 3.7%, signaling moderate inflationary pressures.
Technical Analysis: USD/INR Remains Bullish
From a technical standpoint, the USD/INR pair fell slightly to 88.25 on Wednesday. However, the near-term trend remains bullish, with the pair holding above the 20-day Exponential Moving Average (EMA), currently near 87.85, which acts as a key support level.
The 14-day Relative Strength Index (RSI) has retreated to 60.00, suggesting that bullish momentum could persist if the RSI holds above this level. On the upside, the psychological round figure of 89.00 represents the immediate resistance for the pair.
Traders should monitor price action near the 20-day EMA, as any decisive break below this support could signal a shift in trend. Conversely, sustaining levels above 88.50 may attract further buying interest, particularly if trade optimism continues to drive foreign inflows into Indian markets.
Conclusion
The Indian Rupee is benefiting from US-India trade deal optimism, supported by positive commentary from the US President and the Indian Prime Minister. FIIs turning net buyers in the Indian equity market, coupled with expectations for US PPI and CPI data, provide additional market catalysts.
While the USD/INR remains technically above key support levels, traders and investors will closely monitor macro data and trade developments to assess the sustainability of the current rally. Overall, the combination of diplomatic optimism, foreign buying, and technical support underpins a cautiously bullish outlook for the INR against the USD in the near term.
