USD/INR recovers as tensions rise between India and Pakistan
- Indian Rupee weakens in Tuesday’s early European session.
- Renewed US Dollar demand and rising geopolitical tensions between India and Pakistan could weigh on the INR.
- Investors await the US April Consumer Confidence and March JOLTS Job Openings report, which are due later on Tuesday.
The Indian Rupee (INR) trades in negative territory on Tuesday after logging its best day in more than two weeks in the previous session. The renewed US Dollar (USD) demand due to softening tensions between the United States and China might weigh on the Indian currency. Additionally, concerns over geopolitical tensions between India and Pakistan might contribute to the INR’s downside.
Nonetheless, the positive developments surrounding US-India trade talks could provide some support to the local currency. US Treasury Secretary Scott Bessent said on Monday that many top trading partners of the US had made 'very good' proposals to avert US tariffs, and one of the first deals to be signed would likely be with India. Furthermore, foreign investors have stepped up buying of Indian stocks over the last week, a reversal from the selling pressure witnessed earlier in the month. This, in turn, might create a tailwind for the Indian Rupee.
The US April Consumer Confidence and March JOLTS Job Openings report will be released later on Tuesday. All eyes will be on the preliminary reading of US Gross Domestic Product (GDP) for the first quarter (Q1) on Wednesday ahead of the US Nonfarm Payrolls (NFP) report, which is due later on Friday.
Indian Rupee loses momentum amid firmer USD and geopolitical risks
- Pakistan’s defence minister stated on Monday a military incursion by neighbouring India was imminent in the aftermath of a deadly militant attack on tourists in Kashmir last week, per Reuters.
- "As FPIs continue buying Indian shares along with debt, the flows have bought the Indian rupee to the cusp of 85 from almost 88 two months ago. The range for today is expected to be between 84.90 and 85.60, with expectations that RBI could buy dollars at 85 levels while others sell," said Head of Treasury and Executive Director Anil Kumar Bhansali at Finrex Treasury Advisors LLP.
- The ceasefire violation along the Line of Control (LoC) came days after the Pahalgam terror attack, which killed 26 people, mostly tourists, in the Baisaran valley near Pahalgam, Jammu and Kashmir.
- US Treasury Secretary Scott Bessent said on Monday that the US government is in contact with China but that it’s up to Beijing to take the first step in de-escalating the tariff fight with the US due to the imbalance of trade between the two nations.
- "Vice President Vance was in India last week and talked about substantial progress. I have mentioned that the negotiations with the Republic of Korea have gone very well, and I think we've had some very substantial negotiations with our Japanese allies," said Bessent.
- US President Donald Trump plans to soften the impact of his automotive tariffs by preventing duties on foreign-made cars from stacking with other tariffs and easing levies on foreign parts used in car manufacturing, per the Wall Street Journal. Those actions are expected tomorrow.
- The Fed is expected to leave interest rates unchanged in the range of 4.25%-4.50% in the policy meeting on May 6-7, according to the CME FedWatch tool.
USD/INR remains bearish under the key 100-day EMA
The Indian Rupee edges lower on the day. The USD/INR pair keeps the bearish vibe, with the price holding 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) stands below the midline near 37.00.
A bearish break from the lower limit of the descending trend channel of 84.80 could drag USD/INR toward 84.22, the low of November 25, 2024. Sustained trading below the mentioned level could expose 84.08, the low of November 6, 2024.
On the other hand, the crucial resistance level emerges at 85.80, the 100-day EMA. A decisive break above this level could pick up more momentum and aim for 86.35, the upper boundary of the trend channel.
Risk sentiment FAQs
In the world of financial jargon the two widely used terms “risk-on” and “risk off'' refer to the level of risk that investors are willing to stomach during the period referenced. In a “risk-on” market, investors are optimistic about the future and more willing to buy risky assets. In a “risk-off” market investors start to ‘play it safe’ because they are worried about the future, and therefore buy less risky assets that are more certain of bringing a return, even if it is relatively modest.
Typically, during periods of “risk-on”, stock markets will rise, most commodities – except Gold – will also gain in value, since they benefit from a positive growth outlook. The currencies of nations that are heavy commodity exporters strengthen because of increased demand, and Cryptocurrencies rise. In a “risk-off” market, Bonds go up – especially major government Bonds – Gold shines, and safe-haven currencies such as the Japanese Yen, Swiss Franc and US Dollar all benefit.
The Australian Dollar (AUD), the Canadian Dollar (CAD), the New Zealand Dollar (NZD) and minor FX like the Ruble (RUB) and the South African Rand (ZAR), all tend to rise in markets that are “risk-on”. This is because the economies of these currencies are heavily reliant on commodity exports for growth, and commodities tend to rise in price during risk-on periods. This is because investors foresee greater demand for raw materials in the future due to heightened economic activity.
The major currencies that tend to rise during periods of “risk-off” are the US Dollar (USD), the Japanese Yen (JPY) and the Swiss Franc (CHF). The US Dollar, because it is the world’s reserve currency, and because in times of crisis investors buy US government debt, which is seen as safe because the largest economy in the world is unlikely to default. The Yen, from increased demand for Japanese government bonds, because a high proportion are held by domestic investors who are unlikely to dump them – even in a crisis. The Swiss Franc, because strict Swiss banking laws offer investors enhanced capital protection.
Forex News
Keep up with the financial markets, know what's happening and what is affecting the markets with our latest market updates. Analyze market movers, trends and build your trading strategies accordingly.
