- Indian Rupee posts modest gains in Friday’s Asian session.
- The downbeat US economic data and uncertainty of Trump’s policies weigh on the US Dollar.
- Traders brace for India’s Q1 GDP and US April PCE inflation reports, which are due later on Friday.
The Indian Rupee (INR) gains ground on Friday, snapping the three-day losing streak. The downbeat US economic data and concerns that a US court ruling would change the outlook for US tariffs undermine the US Dollar (USD). A decline in crude oil prices provides some support to the Indian currency, as India is the world’s third-largest oil consumer.
However, the renewed importer USD bids during the month-end could help limit the pair’s losses. Traders will closely watch India’s Gross Domestic Product (GDP) for the first quarter (Q1) due later on Friday. On the US docket, the US April Personal Consumption Expenditures (PCE) Price Index report will take center stage. Also, the final reading of the Michigan Consumer Sentiment and the Chicago of Purchasing Managers Index (PMI) will be published.
Indian Rupee remains strong as traders await key economic data
- The Reserve Bank of India (RBI) has projected India’s real GDP growth at 6.5% for the financial year 2025-26 amid global uncertainties.
- US Initial Jobless Claims for the week ending May 24 climbed to 240K, compared to the previous week of 226K (revised from 227K), according to the US Department of Labor (DOL) on Thursday. This figure came in above the market consensus of 230K.
- Continuing Jobless Claims increased by 26K to reach 1.919M for the week ending May 17.
- San Francisco Fed President Mary C. Daly said late Thursday that the central bank needs a modestly or moderately restrictive policy to keep bringing down inflation.
- Dallas Fed President Lorie Logan stated the monetary policy is in a good place, adding that risks to employment and inflation goals are ‘roughly balanced.’
USD/INR’s bearish outlook remains in play
The Indian Rupee trades in positive territory on the day. The negative outlook of the USD/INR remains intact, characterized by the price holding below the key 100-day Exponential Moving Average (EMA) on the daily timeframe. Further consolidation cannot be ruled out in the near term as the 14-day Relative Strength Index (RSI) hovers around the midline.
The initial support level for USD/INR emerges at 84.78, the low of May 26. Red candlesticks below the mentioned level could drag the pair lower to 84.61, the low of May 12. The next downside target to watch is 84.00, the psychological level and the lower limit of the trend channel.
On the bright side, the key upside barrier is located in the 85.60-85.70 zone, representing the 100-day EMA and the upper boundary of the trend channel. A solid break above this level could open the door for a run toward 86.10, the high of May 22.
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.
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