USD/INR falls ahead of US PMI data
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Lallalit Srijandorn
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05 Mar @ 02:39 (GMT+0)

USD/INR falls ahead of US PMI data

  • The Indian Rupee gains ground in Wednesday’s early European 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. 

Indian economy FAQs

The Indian economy has averaged a growth rate of 6.13% between 2006 and 2023, which makes it one of the fastest growing in the world. India’s high growth has attracted a lot of foreign investment. This includes Foreign Direct Investment (FDI) into physical projects and Foreign Indirect Investment (FII) by foreign funds into Indian financial markets. The greater the level of investment, the higher the demand for the Rupee (INR). Fluctuations in Dollar-demand from Indian importers also impact INR.

India has to import a great deal of its Oil and gasoline so the price of Oil can have a direct impact on the Rupee. Oil is mostly traded in US Dollars (USD) on international markets so if the price of Oil rises, aggregate demand for USD increases and Indian importers have to sell more Rupees to meet that demand, which is depreciative for the Rupee.

Inflation has a complex effect on the Rupee. Ultimately it indicates an increase in money supply which reduces the Rupee’s overall value. Yet if it rises above the Reserve Bank of India’s (RBI) 4% target, the RBI will raise interest rates to bring it down by reducing credit. Higher interest rates, especially real rates (the difference between interest rates and inflation) strengthen the Rupee. They make India a more profitable place for international investors to park their money. A fall in inflation can be supportive of the Rupee. At the same time lower interest rates can have a depreciatory effect on the Rupee.

India has run a trade deficit for most of its recent history, indicating its imports outweigh its exports. Since the majority of international trade takes place in US Dollars, there are times – due to seasonal demand or order glut – where the high volume of imports leads to significant US Dollar- demand. During these periods the Rupee can weaken as it is heavily sold to meet the demand for Dollars. When markets experience increased volatility, the demand for US Dollars can also shoot up with a similarly negative effect on the Rupee.