- The Indian Rupee gains ground in Wednesday’s early Asian session.
- Renewed USD demand and persistent outflows by foreign institutional investors could undermine the INR.
- US ISM Services PMI will be the highlight later on Wednesday.
The Indian Rupee (INR) extends its upside on Wednesday, bolstered by softer US Dollar. Crude oil prices are trading near the lowest in almost three months as OPEC+ said it will proceed with a plan to increase oil production from April. This, in turn, could help limit the INR’s losses as India is the world’s third-largest oil consumer.
On the other hand, the rising US Dollar (USD) buying by foreign banks and Indian importers, especially local oil companies, might exert some selling pressure on the local currency. Furthermore, the ongoing foreign outflows amid increasing global trade tensions could drag the INR lower. Foreign investors have pulled over $14 billion from Indian equities in 2025. Later on Wednesday, the US ISM Services PMI will take center stage.
Indian Rupee drifts higher despite escalating global trade tensions
- The India’s HSBC Composite PMI eased to 58.8 in February vs.60.6 prior. Meanwhile, the Services PMI declined to 59 from 61.1 in the previous reading, beating the estimation of 57.3.
- The RBI’s net short dollar position in forwards and futures hit a record high of $77.5 billion in January 2025, as per data released after market hours on Friday.
- President Donald Trump’s 25% tariffs on goods from Canada and Mexico took effect Tuesday, along with a doubling of duties on Chinese goods to 20%.
- US Commerce Secretary Howard Lutnick hinted that Trump may be preparing to pivot on his own tariffs less than 48 hours after imposing them.
- New York Fed President John Williams said late Tuesday that although inflationary pressures have eased and the US labor market appears strong, the US central bank will have to take a close look at the fallout from the US tariff actions.
USD/INR’s constructive outlook remains in place
The Indian Rupee trades on a stronger note on the day. The USD/INR pair keeps the bullish vibe on the daily chart as the price holds above the key 100-day Exponential Moving Average (EMA). The 14-day Relative Strength Index (RSI) is located above the midline near 60.00, suggesting that the path of least resistance is to the upside.
The first upside barrier for USD/INR emerges at 87.53, the high of February 28. Further north, the next hurdle to watch is an all-time high near 88.00, en route to 88.50.
In the bearish case, the 87.05-87.00 zone acts as a crucial support level for the pair. A breach of this level could expose 86.48, the low of February 21, followed by 86.14, the low of January 27.
RBI FAQs
The role of the Reserve Bank of India (RBI), in its own words, is “..to maintain price stability while keeping in mind the objective of growth.” This involves maintaining the inflation rate at a stable 4% level primarily using the tool of interest rates. The RBI also maintains the exchange rate at a level that will not cause excess volatility and problems for exporters and importers, since India’s economy is heavily reliant on foreign trade, especially Oil.
The RBI formally meets at six bi-monthly meetings a year to discuss its monetary policy and, if necessary, adjust interest rates. When inflation is too high (above its 4% target), the RBI will normally raise interest rates to deter borrowing and spending, which can support the Rupee (INR). If inflation falls too far below target, the RBI might cut rates to encourage more lending, which can be negative for INR.
Due to the importance of trade to the economy, the Reserve Bank of India (RBI) actively intervenes in FX markets to maintain the exchange rate within a limited range. It does this to ensure Indian importers and exporters are not exposed to unnecessary currency risk during periods of FX volatility. The RBI buys and sells Rupees in the spot market at key levels, and uses derivatives to hedge its positions.
