The US dollar has recently been on more stable ground as the United States and China have diffused trade tensions. One impact of this change has been to provide the US Dollar Index (DXY) with some sorely needed reprieve. It kept pretty stable around 99.00 through the Asian trading session. The big picture Recent economic data has had a dramatic effect on expectations for inflation and interest rates. Especially impactful has been the softer-than-expected Consumer Price Index (CPI) report for September which has added a confusing backdrop to currency movements.
In morning trade, the USD/INR pair reached as high as 88.10. On the other hand, Foreign Institutional Investors (FIIs) have withdrawn, selling shares worth Rs. 43,290.32 crores during the last quarter. This important dynamic is a perfect example of how U.S. international trade relations and local market reactions are interconnected. Join investors as they deftly chart a course through waters roiled by external and internal economic signals.
Easing Trade Frictions and Economic Data
In good news Recent events indicate that the U.S.-China trade war is easing. This has resulted in a more stable environment for the US dollar. Treasury Secretary Scott Bessent was very bullish on tariff threats saying,
“No, I’m not, and I’m also anticipating that we will get some kind of a deferral on the rare earth export controls that the Chinese had discussed.”
This hopeful mood seems to be consistent with the broader expectation that deepening cooperation will strengthen both economies.
The pressure from softer inflation data in the U.S. allowed the Federal Reserve to adopt a more supportive stance towards economic growth amid slower job creation. The CPI report, released Wednesday, confirmed our worst fears — headline inflation flared back up by 0.3%. At the same time, monthly core inflation jumped by 0.2%. Compared to last September, the headline CPI increased by 3%. This was a little short of the anticipated 3.1%. At the same time, core CPI slowed to 3%, in line with expectations, but down from prior months.
Implications for USD/INR Pair
Despite these positive strides, the USD/INR pair has more challenges ahead. Indeed, we believe that higher interest rates may be required to get the Indian Rupee to compete favorably. The short-term impact on the US dollar is uncertain. The pair opened the week at roughly 88.10. Technical indicators are flashing warning signs as all eyes turn to major levels that will determine the next big move.
The 14-day Relative Strength Index (RSI) for the USD/INR currency pair is at approximately 40.00. That indicates we could be in for a little more near-term volatility. Market analysts view the August 21 low of 87.07 as key support for the currency pair. Moreover, they consider the September 23 low at about 88.48 a key resistance line.
After an 11th round of talks led Indian officials to express confidence in the current negotiations, one Indian official wrote then,
“There has been convergence on most issues, and a deal is in sight.”
This optimism will shape trading dynamics as stakeholders try to gauge any potential agreements that could alter tariffs and overall trade flows.
Challenges from Domestic Trade Policies
The picture isn’t any better than what lies under the surface backdrop of U.S.-India trade relations, further muddied by recent tariff increases made by President Donald Trump. After India refused to condemn Russia’s invasion of Ukraine, the administration increased tariffs on Indian imports to 50%. Such actions highlight the challenges of negotiating international trade deals, where economic priorities frequently take a back seat to political expediency.
Piyush Goyal, India’s Minister of Commerce and Industry, underlined a cautious stance on the side of negotiators, stating that,
“We don’t do deals in a hurry, and we don’t do deals with deadlines, with a gun on our head.”
We look forward to this statement’s musings on the Indian government being bold in getting favorable terms without bowing to international pressure.
The recent actions of Foreign Institutional Investors (FIIs) indicates the sheer effect of tariffs on immediate market sentiments. They’ve drawn back important investments from Indian markets, owing to raised uncertainty surrounding trade policies.