USD/INR edges higher at open ahead of US NFP data
- The Indian Rupee trades with caution against the US Dollar around 85.75 ahead of the US NFP data for June.
- The US NFP data will significantly influence market expectations for the Fed’s monetary policy outlook.
- FIIs have sold Indian equities worth Rs. 3,531.76 crores in the first two trading days of July.
The Indian Rupee (INR) opens on a cautious note against the US Dollar (USD) on Thursday. The USD/INR pair ticks up to near 85.75 ahead of the United States (US) Nonfarm Payrolls (NFP) data for June, which will be published at 12:30 GMT.
The US NFP report is expected to show that the economy added 110K fresh workers, fewer than 139K in May. The Unemployment Rate is estimated to have accelerated to 4.3% from the prior reading of 4.2%.
Financial market participants will also pay close attention to the Average Hourly Earnings data, a key indicator of wage growth, which is expected to have grown steadily by 3.9% on year. Month-on-month wage growth measure is estimated to have risen at a slower pace of 0.3%, compared to a 0.4% growth seen in May.
Investors will closely monitor the US NFP data as a few Federal Reserve (Fed) officials have argued in favor of interest rate cuts as early as the July policy meeting, citing concerns over labor market strength.
"The Fed should not wait for the job market to crash in order to cut rates," Fed Governor Christopher Waller said in an interview in the last week of June.
Meanwhile, the ADP Employment Change data on Wednesday has shown cracks emerging in the labor market. The agency reported a decline in the labor force in the private sector for the first time since the pandemic era. Businesses laid off 33K employees in June, while they were expected to hire 95K fresh workers. Additionally, the May reading was also revised lower to 29K from 37K.
“Though layoffs continue to be rare, a hesitancy to hire and a reluctance to replace departing workers led to job losses last month,” Nela Richardson, chief economist at ADP, said.
Daily digest market movers: Indian Rupee remains under pressure the entire week
- The Indian Rupee is down against its major peers this week as Foreign Institutional Investors (FIIs) have turned cautious ahead of the deadline of the tariff policy imposed by the US on July 9. Foreign investors have sold Indian equities worth Rs. 3,531.76 crores in the first two trading days of July.
- The uncertainty surrounding the reciprocal tariff policy, as the approaching deadline has forced investors to stay on the sidelines. While market experts struggle to gauge its likely impact on the global economy, Washington is still negotiating trade agreements with its major trading partners. Meanwhile, the US has stated that it has struck a deal with Vietnam.
- US President Donald Trump has also signaled that Washington will secure a deal with New Delhi before the tariff deadline. “I think we are going to have a deal with India. And that is going to be a different kind of a deal. It is going to be a deal where we are able to go in and compete. Right now, India does not accept anybody in. I think India is going to do that, and if they do that, we are going to have a deal for much lower tariffs,” Trump said on Wednesday, ANI News reported.
- The comments from US President Trump indicate that the trade deal is not a complete win for India as it will expose Indian manufacturers to competition from US companies, which are highly capital-intensive.
- Meanwhile, the clearance of Trump’s so-called “Big Beautiful Bill” in the Senate with a narrow majority has increased fears of ballooning already fat US debt. Market experts believe that Trump’s tax and spending cut bill will increase the debt burden to $40 trillion over a decade, a move that could bring further downgrades to US Sovereign Credit.
- Trump’s bill has been passed to the House of Representatives for further approval. If approved, it will march to the president’s desk.
Technical Analysis: USD/INR oscillates around 85.75
The USD/INR pair oscillates well inside Wednesday’s trading range at open on Thursday. The pair has been consolidating in a tight range between 85.56-86.00 over the last three trading days. However, the near-term trend of the pair remains bearish as it stays below the 20-day Exponential Moving Average (EMA), which trades around 85.90.
The 14-day Relative Strength Index (RSI) stays below 50.00, indicating that the trend is on the downside.
Looking down, the 200-day EMA around 85.35 will act as key support for the major. On the upside, Wednesday’s high of 86.13 will be a critical hurdle for the pair.
Indian Rupee FAQs
The Indian Rupee (INR) is one of the most sensitive currencies to external factors. The price of Crude Oil (the country is highly dependent on imported Oil), the value of the US Dollar – most trade is conducted in USD – and the level of foreign investment, are all influential. Direct intervention by the Reserve Bank of India (RBI) in FX markets to keep the exchange rate stable, as well as the level of interest rates set by the RBI, are further major influencing factors on the Rupee.
The Reserve Bank of India (RBI) actively intervenes in forex markets to maintain a stable exchange rate, to help facilitate trade. In addition, the RBI tries to maintain the inflation rate at its 4% target by adjusting interest rates. Higher interest rates usually strengthen the Rupee. This is due to the role of the ‘carry trade’ in which investors borrow in countries with lower interest rates so as to place their money in countries’ offering relatively higher interest rates and profit from the difference.
Macroeconomic factors that influence the value of the Rupee include inflation, interest rates, the economic growth rate (GDP), the balance of trade, and inflows from foreign investment. A higher growth rate can lead to more overseas investment, pushing up demand for the Rupee. A less negative balance of trade will eventually lead to a stronger Rupee. Higher interest rates, especially real rates (interest rates less inflation) are also positive for the Rupee. A risk-on environment can lead to greater inflows of Foreign Direct and Indirect Investment (FDI and FII), which also benefit the Rupee.
Higher inflation, particularly, if it is comparatively higher than India’s peers, is generally negative for the currency as it reflects devaluation through oversupply. Inflation also increases the cost of exports, leading to more Rupees being sold to purchase foreign imports, which is Rupee-negative. At the same time, higher inflation usually leads to the Reserve Bank of India (RBI) raising interest rates and this can be positive for the Rupee, due to increased demand from international investors. The opposite effect is true of lower inflation.