USD/INR attracts some sellers on inflows, all eyes on US NFP data
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Lallalit Srijandorn
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02 May @ 02:57 (GMT+0)

USD/INR attracts some sellers on inflows, all eyes on US NFP data

  • Indian Rupee gathers strength in Friday’s early European session. 
  • Possible equity inflows and US Dollar sales underpin the INR, but geopolitical risks might cap its upside. 
  • The US April employment data will take center stage later on Friday. 

The Indian Rupee (INR) extends the rally on Friday. Foreign portfolio inflows into Indian equities and increased hedging-related US Dollar (USD) sales from local exporters boost the Indian currency. Additionally, optimism surrounding a potential trade agreement between the US and India contributes to the INR's upside. 

However, the surge in tensions between India and Pakistan could undermine the local currency. Pakistan claims it has “credible intelligence” that India is planning imminent military action, a week after an attack that killed 26 people in the India-administered Kashmir.

Investors will closely watch the US April employment data later on Friday, including the Nonfarm Payrolls (NFP), the Unemployment Rate and Average Hourly Earnings. The NFP is expected to show 130K job additions in April, while the Unemployment Rate is estimated to remain at 4.2%.

Indian Rupee remains firm amid positive domestic markets

  • The Indian Rupee's performance in March marked an appreciation of over 2%, its strongest monthly performance since November 2018. MUFG Bank noted, "A weaker US dollar, along with the market becoming more dovish on the US rates outlook, could provide some support for several Asian currencies."
  • US President Donald Trump announced potential trade deals with India, South Korea, and Japan, seeking to convert his tariff policy into trade agreements. 
  • US trade representative Jamieson Greer said late Wednesday that US President Donald Trump’s administration expects to conclude initial tariff deals with some US trading partners within weeks.  
  • US weekly Initial Jobless Claims for the week ended April 26 rose by 241,000, compared to the previous week of 223K (revised from 222K), according to the US Department of Labor on Thursday. This reading came in above the market consensus of 224K.
  • US ISM Manufacturing Purchasing Managers’ Index (PMI) declined to 48.7 in April from 49.0 in March. This figure was stronger than the expectation of 48.0. 
  • The US economy contracted at an annualised rate of 0.3% in the first quarter (Q1) of 2025, according to the US Commerce Department on Thursday. This figure came in weaker than the estimation of 0.4% and down from the previous reading of a 2.4% expansion.
  • Futures contracts see the Fed to start rate cuts in June, with a total of four quarter-point reductions expected, lowering the rate to the 3.25%-3.50% band by year-end. 

USD/INR keeps the bearish vibe, oversold RSI warrants caution for bears

The Indian Rupee strengthens on the day. The USD/INR maintains its negative outlook on the daily timeframe, with the price holding below the key 100-day Exponential Moving Average (EMA). Nonetheless, the 14-day Relative Strength Index (RSI) moves below the 30.00 mark, indicating oversold conditions and warranting some caution. This suggests that further consolidation or a temporary recovery is on the cards.

A breach of the lower limit of the descending trend channel would bring USD/INR to 84.22, the low of November 25, 2024. If the pair continues to see red candlesticks and sustains price action below the mentioned level, we might see a drop to 84.08, the low of November 6, 2024.

On the other hand, the immediate resistance level to watch is 85.14, the low of April 23. Sustained trading above this level could pave the way to 85.72, the 100-day EMA, en route to 86.25, the upper boundary of the trend channel. 

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.