The Indian Rupee (INR) is experiencing declines on Monday due to an escalating trade war linked to US tariff policies, which are affecting trade and supply chains. However, falling crude oil prices could mitigate some losses, as India is the third-largest oil consumer globally.
Market participants are monitoring the impact of tariffs on foreign exchange markets, particularly with the Reserve Bank of India (RBI) set to announce a potential interest rate cut of 25 basis points on Wednesday due to global economic concerns.
Recent Economic Data
Recent economic data presents mixed outcomes, with the HSBC India Services Purchasing Managers’ Index (PMI) slightly improving to 58.5 in March. Additionally, a 26% tariff imposed on Indian imports by the US, effective April 9, adds to the market uncertainty.
The USD/INR outlook appears bearish, trading below the key 100-day Exponential Moving Average (EMA). The 14-day Relative Strength Index (RSI) suggests continued downside potential, with initial support at 85.20 and possible further declines to 85.00 and 84.84.
Key influences on the INR include oil prices, the value of the US Dollar, foreign investment levels, and RBI actions in forex markets. The RBI’s interest rate decisions also contribute to the Rupee’s strength, as higher rates typically bolster its value. Various macroeconomic factors, including inflation, growth, and trade balance, profoundly affect the currency.
The Indian Rupee is facing ongoing challenges amid rising trade tensions and unclear economic implications, with traders remaining vigilant for forthcoming policy shifts and market changes.
Impact Of Trade Tensions
With the Indian Rupee slipping further at the start of the week, exchange rate watchers are clearly weighing external friction — particularly the escalation in US trade barriers — alongside domestic monetary policy signals. While Washington’s new 26% levy on certain imported goods from India will officially take effect on the 9th of April, the psychological toll is more immediate, injecting unease into already fragile sentiment.
We’re seeing a dynamic where pricing pressures from falling crude offer a partial cushion. India, given its heavy reliance on imported oil, naturally benefits on the currency front when energy costs retreat. Over short spans, this can help offset selling pressure, especially in the absence of concurrent capital outflows.
Sharma at the central bank is likely to cut interest rates by 25 basis points mid-week. Markets have already baked in that outcome. It’s the commentary around future action that could surprise, depending on whether economic softness prompts a more dovish adjustment in the RBI’s language. The bond market may front-run this, but spot traders will be watching real yields and external balances before shifting positioning on futures.
Technically, the downside in USD/INR appears to be intact. Trading beneath its 100-day EMA typically reflects broader structural weakness. The RSI sitting in lower territory, near 30, signals the pair might still have room to stretch downward — provided there’s no large spike in dollar demand at the interbank level. Immediate support levels are holding firm at key figures around 85.20, but if that goes, nothing solid stands before 84.84.
By gauging the impact of the Federal Reserve’s positioning versus RBI moves, one can infer real rate differentials, which often steer speculative flows. With inflation not running out of control and growth profiles across EM Asia looking mixed, many are fine-tuning their short-dated options books and squaring weeklies against US data risk.
We are also seeing real money accounts slow their outward leg from Indian bond markets, potentially owing to FX hedging costs normalising somewhat. If this continues, it might provide passive support to the Rupee, particularly in the face of dollar index weakness or soft US macro prints. However, flow direction still isn’t one-sided.
Given that macro drivers are clear — crude’s stability, RBI’s dovish tilt, softening global trade sentiment — there’s opportunity for tactical positioning. Intraday ranges will widen around any surprise from Powell’s camp or unusual RBI language.
For now, participants should remain attentive to the strength of intervention bands. Historically, the central bank has not hesitated to step in during thin liquidity periods to preserve orderly market conduct. Volumes will likely rise closer to Wednesday’s announcement, but until then, tighter risk controls and short-term bias recalibration seem appropriate.
