Market Data 
- Indian Rupee strengthens in Tuesday’s early European session.
- Positive trends in Indian equities and concerns over the Fed’s independence could boost the INR.
- Traders brace for the speeches from Fed’s Harker and Kashkari later on Tuesday.
The Indian Rupee (INR) edges higher on Tuesday after hitting a four-month high in the previous session. The rally in Indian equities could provide some support to the Indian currency. Additionally, anxiety over tariffs and criticism of US Federal Reserve (Fed) Chair Jerome Powell by US President Donald Trump could drag the US Dollar (USD) lower and benefit the INR.
On the other hand, markets will watch the Reserve Bank of India (RBI), which seems to be buying the USD to curb the INR rise. The rising expectation that the RBI will deliver an interest rate cut in the upcoming policy meeting could weigh on the local currency. The latest data showed that the Indian inflation rate declined to its lowest in over five years in March, well below the RBI’s midpoint target of 4%.
The Fed’s Patrick Harker and Neel Kashkari are set to speak later on Tuesday. On Wednesday, India’s HSBC Purchasing Managers’ Index (PMI) for April and US S&P Global PMI reports will be in the spotlight.
Indian Rupee gains momentum on US-India trade developments
- India’s Prime Minister Narendra Modi and US Vice President JD Vance welcomed “significant progress” in the ongoing negotiations for a mutually beneficial Bilateral Trade Deal (BTA).
- According to the US Trade Representative, they formally announced the finalisation of the Terms of Reference for the negotiations, laying down a roadmap for further discussions about shared economic priorities.
- US President Donald Trump slammed the Fed’s Powell for continuing to support a “wait and see” mode on the monetary policy until greater clarity over how the new tariff policy will shape the economic outlook.
- Trump warned in a Truth Social post that the US economy would slow unless Powell lowered interest rates immediately.
- White House economic adviser Kevin Hassett said on Friday that Trump and his team were continuing to study whether they could fire the Fed’s Powell.
USD/INR’s bearish outlook remains in place under the 100-day EMA
The Indian Rupee trades on a firmer note on the day. However, traders should note that the price remains capped below the key 100-day Exponential Moving Average (EMA) on the daily chart, suggesting the longer-term downtrend remains intact. The downward momentum is reinforced by the 14-day Relative Strength Index (RSI), which stands below the midline near 38.10.
The crucial support level for USD/INR is located at the 85.00-84.95 region, representing the psychological level and the lower limit of the descending trend channel. If bearish pressure kicks in, this could drag the pair towards 84.53, the low of December 6, 2024. The additional downside filter to watch is 84.22, the low of November 25, 2024.
On the other hand, the 100-day EMA at 85.85 acts as an immediate resistance level for the pair. If USD/INR holds above this level and buyers step in, the pair could make a run for 86.55, the upper boundary of the trend channel.
Tariffs FAQs
Tariffs are customs duties levied on certain merchandise imports or a category of products. Tariffs are designed to help local producers and manufacturers be more competitive in the market by providing a price advantage over similar goods that can be imported. Tariffs are widely used as tools of protectionism, along with trade barriers and import quotas.
Although tariffs and taxes both generate government revenue to fund public goods and services, they have several distinctions. Tariffs are prepaid at the port of entry, while taxes are paid at the time of purchase. Taxes are imposed on individual taxpayers and businesses, while tariffs are paid by importers.
There are two schools of thought among economists regarding the usage of tariffs. While some argue that tariffs are necessary to protect domestic industries and address trade imbalances, others see them as a harmful tool that could potentially drive prices higher over the long term and lead to a damaging trade war by encouraging tit-for-tat tariffs.
During the run-up to the presidential election in November 2024, Donald Trump made it clear that he intends to use tariffs to support the US economy and American producers. In 2024, Mexico, China and Canada accounted for 42% of total US imports. In this period, Mexico stood out as the top exporter with $466.6 billion, according to the US Census Bureau. Hence, Trump wants to focus on these three nations when imposing tariffs. He also plans to use the revenue generated through tariffs to lower personal income taxes.
