USD/INR rebounds, Trump-Putin meeting.

USD/INR rebounds, showing caution before the Trump-Putin meeting.

USD/INR rebounds, Trump-Putin meeting.

The Indian Rupee (INR) dropped against the US Dollar (USD) on Thursday after a two-day recovery. The USD/INR rose close to 87.80 as India's Wholesale Price Index (WPI) inflation fell at an annual rate of 0.58% in July. This was quicker than the estimated 0.3% and down from 0.13% in June.

The slowing inflation at the wholesale level indicates that companies expect weak demand. This could lead Reserve Bank of India's (RBI) officials to support easing monetary policy. Financial market participants were already wary of the Indian Rupee's outlook ahead of the meeting between US President Donald Trump and Russian leader Vladimir Putin, set for Friday in Alaska. 

Trump reached out to Putin to discuss ending the war in Ukraine. On Wednesday, Trump warned of severe consequences if Putin did not agree to a truce in Ukraine. 

The Trump-Putin meeting is crucial for the Indian Rupee's outlook. The US has raised tariffs on imports from New Delhi to 50% for buying Oil from Russia. US Treasury Secretary Bessent also warned that tariffs on India could increase if talks with Russia do not go well. Bessent stated, We placed secondary tariffs on India for buying Russian oil. If things don’t go well, then sanctions or secondary tariffs could rise.

Despite the trade tensions between the US and India, S&P has kept a positive view on India's sovereign ratings. They noted that the Indian economy relies heavily on domestic consumption and has limited exposure to global trade. India’s long-term unsolicited sovereign credit ratings were upgraded to "BBB" from "BBB".

I don't think the tariffs imposed on India will impact economic growth, largely because India is not very trade-oriented. If you look at India's exposure to the US in terms of exports to GDP, it's about 2 percent, said S&P Global Ratings Director YeeFarn Phua. 

Meanwhile, the ongoing outflow of foreign funds from Indian equity markets is adding to uncertainty around the Indian Rupee’s outlook. On Wednesday, Foreign Institutional Investors (FIIs) sold shares worth Rs. 3,644.43 crores in Indian markets. So far in August, FIIs have reduced their stake by Rs. 22,264.75 crores in Indian equities, buying only on one trading day. Generally, currencies from economies that experience substantial outflows of foreign funds tend to underperform.

Looking ahead, the Indian currency is expected to stay inactive as equity markets in the country will close on Friday for Independence Day.

Daily digest market movers: Indian Rupee declines against US Dollar, US PPI in focus

The Indian Rupee is trading lower against the US Dollar, even as the latter faces pressure from growing expectations that the Federal Reserve (Fed) will restart its monetary expansion cycle at the September policy meeting, which was paused after interest rate cuts in December 2024. 

At the time of writing, the US Dollar Index (DXY), which measures the Greenback’s value against six major currencies, hovers near an over two-week low of about 97.60. The CME FedWatch tool shows that traders have nearly fully priced in a 25 basis points (bps) interest rate cut in September, which will bring borrowing rates down to 4.00-4.25%. 

Dovish expectations from the Fed surged after the US Consumer Price Index (CPI) report for July showed that headline inflation rose moderately by 0.2% month-over-month, as expected and softer than 0.3% in June. This report eased investors’ concerns about the continuous impact of tariffs on prices.

Market experts have mixed opinions on whether the Fed will cut interest rates in September. Goldman Sachs stated in a research note that it expects the Fed to deliver three 25-bps cuts this year and two more in 2026. In contrast, analysts at Commonwealth Bank of Australia warned, Another CPI and payrolls report ahead of the September meeting could make or break the case for a rate cut.

On Wednesday, US Treasury Secretary Scott Bessent mentioned in an interview on Bloomberg TV that the Fed might consider a larger-than-usual interest rate cut of 50bps next month, citing weak payroll data from the last three months. He added that interest rates need to come down by 150-175 bps, saying, Rates are too constrictive. We should probably be 150 to 175 basis points lower.

In Thursday’s session, investors will focus on the US Producer Price Index (PPI) data for July, which is due to be released at 12:30 GMT. The US producer inflation is expected to have increased at a quicker rate both month-over-month and year-over-year.

Technical Analysis: USD/INR holds above 20-day EMA

USD/INR found support near its weekly low of around 87.55 and rebounded to about 87.70 on Thursday. The near-term trend for the pair remains positive as the 20-day Exponential Moving Average (EMA) rises around 87.30. 

The 14-day Relative Strength Index (RSI) is near 60.00. A new bullish momentum could develop if the RSI stays above this level. 

Looking lower, the 20-day EMA will serve as crucial support for the currency pair. On the upside, the high from August 5 around 88.25 will be a significant barrier for the pair.