The Indian Rupee (INR) opened on a weak note against the US Dollar (USD) on Friday, with the USD/INR pair rising to near 88.50, approaching the all-time high of 88.60 recorded on Thursday.
Market participants are positioning cautiously ahead of India’s Consumer Price Index (CPI) data for August, while ongoing US-India trade tensions continue to influence investor sentiment. The brokers at Fletrade present a thoughtful and comprehensive overview of the matter.
US-India Trade Dynamics
US Commerce Secretary Howard Lutnick commented on trade negotiations, signaling that a trade deal with India is possible if New Delhi halts purchases of Russian oil. Lutnick told CNBC, “Well, we’re going to sort out India once it stops buying Russian oil,” as reported by Reuters.
The backdrop involves a 90-day grace period provided by the US to its trading partners to finalize trade agreements before imposing reciprocal tariffs. Initially, India was expected to be the first nation to secure a deal, but tensions stemming from geopolitical concerns, particularly the India-Pakistan conflict, have delayed progress.
Currently, India faces the highest US tariffs for importing Russian oil, intensifying market uncertainty.
A report by the Financial Times (FT) highlighted that the US may pressure G7 countries to impose higher tariffs on both India and China for Russian oil imports. This development has influenced Foreign Institutional Investors (FIIs), who have continued to reduce exposure to Indian equities.
On Thursday, FIIs sold Rs. 3,472.37 crores in the cash segment of Indian stock markets, signaling caution ahead of critical macroeconomic data releases.
India’s CPI Data in Focus
Investors are closely watching India’s CPI data for August, scheduled for release at 10:30 GMT. Economists expect inflationary pressures in India to rise to an annualized 2.1%, up from 1.55% in the previous month. A stronger CPI reading could reinforce the weakness in the INR, potentially pushing USD/INR closer to 88.60 or higher.
Rising inflation in India may also influence the Reserve Bank of India (RBI)’s monetary stance, with interest rate policy remaining a key driver for both the currency market and equity flows.
US Market Drivers: Inflation and Jobless Claims
The upside move in USD/INR is further supported by a steady US Dollar (USD). The US Dollar Index (DXY), tracking the USD against six major currencies, rebounded 0.15% to near 97.65, recovering from sharp declines observed on Thursday.
The US Department of Labor reported Initial Jobless Claims for the week ending September 5 at 263K, the highest level in four years. Economists had forecast 235K, marginally below the prior reading of 236K, indicating a softening labor market.
Weakening job growth has reignited speculation that the Federal Reserve (Fed) could reduce interest rates at its September policy meeting. According to the CME FedWatch tool, traders assign a 7.5% probability of a 50-basis-point (bps) cut to 3.75%-4.00%, while a 25-bps reduction remains the more likely scenario.
Meanwhile, US inflationary pressures persist. The headline CPI rose at an annual pace of 2.9% in August, slightly above 2.7% previously, while monthly CPI accelerated to 0.4%, higher than the 0.3% forecast.
Rising inflation combined with weak job growth fuels stagflation fears, presenting a challenging environment for Fed policymakers to balance monetary tightening against economic slowdown risks.
Key Market Events
Investors will also monitor the preliminary Michigan Consumer Sentiment Index (CSI) for September. The sentiment index is expected to slightly ease to 58.0 from 58.2 in August, providing additional insight into consumer confidence and domestic demand trends.
Technical Analysis: USD/INR Outlook
On the technical front, the USD/INR pair holds a bullish near-term trend as it trades above the 20-day Exponential Moving Average (EMA) near 88.00. The 14-day Relative Strength Index (RSI) has rebounded from 60.00, signaling renewed bullish momentum.
Key support lies at the 20-day EMA, while resistance is seen at the psychological level of 89.00. Traders are likely to watch these levels closely, as a break above 89.00 could signal further upside potential, whereas a failure to hold 88.00 may trigger a short-term pullback.
Conclusion
The USD/INR opened higher amid ongoing US-India trade tensions, a weaker Indian Rupee, and a resilient US Dollar. The focus on India’s CPI data for August, combined with US jobless claims and inflation data, underscores a volatile trading environment.
Market participants should closely monitor geopolitical developments, tariff negotiations, and macroeconomic indicators for trading opportunities and risk management, as both domestic and international factors continue to shape the USD/INR dynamics.
