The USD/INR pair is showing renewed strength in early Tuesday trading as market sentiment pivots around two major macroeconomic catalysts: the US Consumer Price Index (CPI) data and the Indian CPI release, both due later in the day.
The Indian Rupee (INR) is under pressure, reflecting a broader negative trend in emerging market currencies amid a stronger US Dollar (USD), fueled by optimism surrounding US-China trade negotiations and rising geopolitical tensions in South Asia. A thorough evaluation of the topic is provided by Monovex brokers in the article.
Indian Rupee Weakens Amid Geopolitical Concerns and Dollar Demand
The INR is trading in negative territory during the early European session on Tuesday, continuing its bearish tone. The weakness is partially driven by positive developments in US-China trade talks, which have revived demand for the Greenback, reducing investor appetite for riskier assets such as emerging market currencies.
Indian Prime Minister Narendra Modi made headlines on Monday with a stern warning against Pakistan, stating that India “will not tolerate nuclear blackmail.” Though hostilities across Jammu and Kashmir and border towns have paused, Modi’s message signals the possibility of renewed military action, introducing downside pressure on the Rupee.
US-China Trade Talks Underpin Dollar Gains
A significant driver behind the USD’s rise is the positive momentum in the US-China trade negotiations. The US President has agreed to lower tariffs on Chinese imports, cutting duties from 145% to 30%, while China will reduce tariffs on US goods from 125% to 10%. These revisions, effective for the next 90 days, are perceived as pro-growth measures, bolstering confidence in the US economic outlook and increasing capital flows into the USD.
The development comes at a critical juncture for the Federal Reserve (Fed) as markets continue to assess the likelihood of interest rate cuts later in the year. According to swap markets, a 25 basis point (bps) cut is already priced in for the September meeting, with two more potential cuts projected by year-end. This is a shift from last week’s expectations of a triple-cut scenario, indicating moderated Fed easing amid better-than-expected economic resilience.
FPIs Support INR Amid Domestic CPI Optimism
Despite external pressures, a modest bright spot for the INR has emerged. Foreign Portfolio Investors (FPIs) have resumed buying Indian equities, suggesting a degree of confidence in India’s domestic economy. This capital inflow could help cushion the Rupee against broader market headwinds, particularly if the upcoming Indian CPI print indicates stable inflation.
Economists expect the Indian CPI for April to stay within the RBI’s target range, providing policymakers with room for maneuver without immediately resorting to rate hikes. However, any upside surprise could reignite concerns over inflation, potentially limiting the Rupee’s upside.
US CPI in Focus: Will Inflation Cool Further?
On the global front, the US CPI report is the main macro event on Tuesday’s docket. The headline CPI is expected to rise 2.4% year-on-year (YoY) in April, while the core CPI, which excludes food and energy, is forecasted to increase 2.8% YoY. These figures, if in line or softer than expected, could reinforce the Fed’s dovish tilt, limiting further Dollar strength.
Conversely, any upside surprise would suggest that inflationary pressures remain sticky, potentially prompting a reassessment of the Fed’s rate path, thereby supporting the USD further and dragging the INR lower.
Technical Outlook: Bearish Bias Intact Below 100-Day EMA
From a technical perspective, the USD/INR pair continues to hover below the crucial 100-day Exponential Moving Average (EMA) on the daily chart, which currently caps the price near 85.60. The 14-day Relative Strength Index (RSI) stands at 44.15, below the neutral 50 mark, indicating that downward momentum still has room to play out.
Key support levels to watch include:
- 84.53: The low from May 8
- 84.12: The low from May 5
- 83.76: The low from May 2
If the pair breaks below 84.53, it could trigger further selling pressure, potentially targeting the 83.76 area.
On the resistance side, the psychological 85.00 level is the first hurdle. A break above this could see bulls testing the 100-day EMA at 85.60, followed by the round number at 86.00, which also represents the upper trend channel boundary.
Conclusion: All Eyes on CPI Prints
The USD/INR exchange rate remains at a critical juncture, balancing geopolitical risks, macroeconomic data releases, and technical signals. While US-China trade optimism and Fed expectations support the US Dollar, factors such as FPI flows and a stable domestic inflation print could help limit INR losses.
However, the outcome of the CPI reports from both the US and India will likely determine the next directional move. Until then, volatility is expected to remain elevated, and traders should brace for sharp swings in either direction, particularly if the inflation figures surprise expectations.
