USD/INR drifts higher on concerns over US tariffs, global trade war

• The Indian Rupee weakens in Tuesday’s early European session.
• Persistent US dollar demand and unabated outflow of foreign funds weigh on the INR. 
• Indian and US CPI inflation reports will take center stage on Wednesday. 

The Indian Rupee (INR) extends the decline on Tuesday, pressured by strong US Dollar (USD) demand by importers. Maturities in the non-deliverable forwards (NDF) market also exert some selling pressure on the local currency that has been hit by foreign fund sales of local equities since late September. The uncertainty caused by US President Donald Trump’s tariff policy might impact emerging market currencies like the INR.

Nonetheless, any significant depreciation of the local currency might be limited due to the foreign exchange intervention from the Reserve Bank of India (RBI). Furthermore, a decline in crude oil prices might help limit the INR’s losses as India is the world's third-largest oil consumer.

In the absence of top-tier economic data releases from the United States and India on Tuesday, the USD/INR pair will be driven by the Greenback. The Indian and US Consumer Price Index (CPI) inflation reports for February will be the highlights on Wednesday. 

Indian Rupee softens amid portfolio outflows and global factors

• "The rupee weakened because of an increase in dollar demand from oil companies, as Indian companies have started buying oil from the US," a trader at a private bank said.
• Foreign investors have withdrawn almost $15 billion from Indian shares so far this year, putting outflows on track to surpass the record $17 billion registered in 2022. The selloff has wiped out $1.3 trillion from India’s market value.
• Trump declined on Sunday to predict whether the US could face a recession amid stock market concerns about his tariff actions on Mexico, Canada and China.
• The US Nonfarm Payrolls (NFP) came in weaker than the expectation, rising by 151K in February versus 125K prior (revised from 143K). Meanwhile, the Unemployment Rate ticked higher to 4.1% in February from 4.0% in January.
• Fed Chair Jerome Powell said on Friday that the US central bank can remain patient in adjusting its benchmark interest rate, citing uncertainty around the potential impact of Trump's policies. 
• Traders are now pricing in 75 basis points (bps) of cuts from the Fed this year, LSEG data showed, with a rate cut fully priced in for June.

USD/INR retains its bullish bias in the longer term

The Indian Rupee weakens on the day. The bullish bias of the USD/INR pair remains intact, with the price holding above the key 100-day Exponential Moving Average (EMA) on the daily chart. The path of least resistance is to the upside as the 14-day Relative Strength Index (RSI) stands above the midline near 60.0. 

The first upside target for USD/INR emerges at 87.53, the high of February 28. Potential bullish candlesticks above the mentioned level could see a rally to an all-time high near 88.00, en route to 88.50. 

In the bearish event, the initial support level is located at 86.86, the low of March 6. Any follow-through selling could attract some selling pressure to  86.48, the low of February 21, followed by 86.14, the low of January 27.