The Indian Rupee (INR) lost ground on Thursday, ending a five-day winning streak as it faced pressure from a weakening Chinese Yuan amidst escalating trade tensions. The trade war, which has intensified, is impacting most Asian currencies, including the INR. Additionally, a rebound in crude oil prices added further downward pressure on the currency, as India, the world’s third-largest oil consumer, is highly sensitive to oil price fluctuations.
Despite these challenges, optimism surrounding Indian stocks may provide some support to the local currency. The Indian stock market has managed to recover losses caused by US President Trump’s reciprocal tariffs earlier this month. India’s large domestic economy is expected to weather a potential global recession better than many of its peers, especially those more vulnerable to higher tariffs.
Looking ahead, investors are focused on the release of key US data, including Building Permits, Housing Starts, the Philly Fed Manufacturing Index, and weekly Initial Jobless Claims, all of which are due later on Thursday. However, Indian markets will be closed for Good Friday.
Trade Tensions Weigh on INR, But Market Dynamics Offer Some Support
Sakshi Gupta, principal economist at HDFC Bank, noted that the Chinese Yuan serves as a key benchmark for many Asian currencies, including the INR. She suggested that the Reserve Bank of India (RBI) may be comfortable with some depreciation of the INR, as a weaker yuan and other regional currencies could improve India’s competitiveness.
U.S. Federal Reserve (Fed) Chair Jerome Powell also weighed in on global trade tensions, cautioning that they could undermine the Fed’s goals on employment and inflation. Powell acknowledged that U.S. economic growth is showing signs of slowing, with modest consumer spending and a rush of imports to avoid tariffs likely to impact GDP growth. Despite stronger-than-expected U.S. Retail Sales data, which rose by 1.4% in March, the broader economic uncertainty continues to cloud the outlook.
Markets are now pricing in the likelihood of rate cuts from the Fed in June, with expectations that the policy rate, currently between 4.25%-4.50%, will be reduced by one percentage point by the end of the year.
Technical Outlook for USD/INR: Bearish Bias Remains
The technical outlook for the USD/INR pair remains bearish, with the currency trading below the key 100-day Exponential Moving Average (EMA) on the daily chart. The path of least resistance is to the downside, as the 14-day Relative Strength Index (RSI) is hovering near 41.60, indicating a lack of bullish momentum.
Immediate downside targets are at 85.51, the low of April 16. A break below this level could see further declines to 85.20, the low of April 3, followed by 84.95, the low from April 4. On the upside, resistance is found in the 85.90-86.00 zone, where the 100-day EMA and psychological level reside. A sustained move above this range could open the door to 86.61, the high of April 10.
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