The Indian Rupee (INR) began the week on a positive note, rising slightly against the US Dollar (USD) in early Monday trading. The USD/INR pair declined toward 88.00, indicating renewed strength in the domestic currency despite rising geopolitical tensions. The brokers at Servelius provide a comprehensive breakdown of this topic in this article.
This week will see reduced trading activity as the Indian currency markets remain closed on Tuesday and Wednesday due to Diwali Laxmi Pujan and Balipratipada holidays.
The Rupee’s early gains come amid global uncertainty, with investors keeping a close watch on developments between New Delhi and Washington, as the US President issued a warning regarding tariffs on Indian imports.
US Threatens Tariffs Over India’s Russian Oil Purchases
Over the weekend, the US President reiterated that high tariffs on imports from India would remain in place unless the nation stops purchasing oil from Russia. The warning followed recent reports questioning the credibility of the US President’s claim that Prime Minister Narendra Modi had assured him that India would halt buying seaborne crude oil from Moscow.
The Indian Ministry of External Affairs dismissed those claims last week, confirming that India continues to import oil from Russia, in line with its energy security strategy. India’s heavy reliance on discounted Russian crude has been a key friction point with Washington over the past several months.
As a result, the United States raised tariffs on Indian imports to as high as 50%, triggering a sharp depreciation in the Indian Rupee and a large outflow of foreign capital from Indian equities earlier this year.
Foreign Institutional Investors Slow Down Equity Sell-Off
Despite past volatility, Foreign Institutional Investors (FIIs) appear to be regaining confidence in Indian markets. According to official data, FIIs have sold shares worth only Rs. 586.76 crores so far in October, a substantial decline compared with the heavy outflows seen between July and September.
This moderation in foreign selling suggests improving investor sentiment, supported by robust domestic demand, stable macroeconomic data, and expectations that the Reserve Bank of India (RBI) will maintain a supportive monetary policy stance in the near term.
Domestic Data Awaited: CPI and PMI in Focus
On the domestic front, Indian investors are awaiting the release of key macroeconomic indicators later this week. The Consumer Price Index (CPI) data for September, which had been delayed, along with the S&P Global Purchasing Managers’ Index (PMI) for October, are both scheduled for release on Friday.
These figures will offer valuable insights into inflation trends and manufacturing sector performance, both of which play a critical role in shaping the RBI’s monetary policy decisions. A softer inflation print could reinforce expectations that the central bank will keep interest rates stable or consider further easing if global growth concerns intensify.
Federal Reserve Rate-Cut Expectations
Global traders continue to monitor signals from the Federal Reserve (Fed), with the CME FedWatch Tool showing that markets expect a rate cut of more than 50 basis points (bps) before the end of the year.
A dovish Fed stance generally weighs on the US Dollar, providing emerging market currencies like the Indian Rupee with temporary relief. However, the Fed’s forward guidance and economic outlook will remain key determinants for the USD/INR trajectory over the coming months.
Technical Analysis: USD/INR Faces Resistance at 50-Day EMA
From a technical perspective, the USD/INR pair opened lower this week, dropping close to 88.00, indicating a bearish bias in the short term. The 50-day Exponential Moving Average (EMA) around 88.13 continues to act as a crucial resistance level for the pair, restricting any immediate upside move.
Meanwhile, the 14-day Relative Strength Index (RSI) has slipped below 40.00, signaling the emergence of fresh bearish momentum.
If the downtrend continues, traders will eye the August 21 low of 87.07 as a key support zone. On the flip side, any rebound above the 20-day EMA could trigger renewed buying interest, although the broader outlook remains cautiously bearish for now.
Outlook: Cautious Optimism Amid Global Uncertainty
In summary, the Indian Rupee’s early strength reflects a mix of technical corrections, improved domestic sentiment, and reduced foreign outflows, even as geopolitical risks linger. The next major catalysts for the USD/INR pair will likely stem from upcoming domestic economic data, Fed policy expectations, and developments in US-India trade relations.
With holiday-thinned volumes expected due to the Diwali break, traders should brace for heightened volatility once markets reopen later in the week.
Overall, the short-term bias for USD/INR remains bearish, but the pair’s medium-term direction will depend on how global trade, energy policy disputes, and central bank actions unfold in the coming weeks.
