The Indian Rupee (INR) opened higher on Tuesday against the US Dollar (USD), buoyed by resurgent optimism over a potential bilateral trade agreement between Washington and New Delhi. The USD/INR pair, which had touched a weekly high of 86.15, corrected sharply to 85.88, indicating a positive shift in market sentiment. The Aurudium finance team delivers a clear and well-researched explanation of this topic in their article.
His remarks followed a dramatic announcement of reciprocal tariffs on 14 countries, including economic heavyweights Japan and South Korea, at a rate of 25%. The announcement was accompanied by a veiled threat of further tariff escalations if any of the affected nations respond with retaliation.
However, India appears to be exempt from the current round, with the US signaling a desire to finalize an agreement soon.
Resurgent Trade Talks Fuel INR Strength
Market participants interpreted the renewed diplomatic tone as a bullish trigger for the Rupee. The prospect of a US-India trade deal, which had been in limbo for months, now seems within reach.
Investors are particularly hopeful that the final agreement will include tariff concessions, especially for labour-intensive sectors such as footwear, garments, and leather. These sectors represent a critical pillar of India’s export economy and are heavily reliant on favorable access to Western markets.
At the same time, Indian trade negotiators are pushing back on any deal clauses that could harm the agriculture and dairy sectors, which employ millions of rural workers and are seen as politically sensitive industries.
Still, lingering concerns remain. Market watchers warn that an influx of US multinationals through a liberalized trade regime could intensify competitive pressure on Indian firms, adding downside risk for the INR in the long run.
Dollar Weakens as Markets Digest Tariff Shock
The US Dollar Index (DXY) also corrected lower to 97.30 after reaching a weekly peak of 97.66. The pullback was catalyzed by the tariff announcement, which spooked global investors. The Japanese Yen (JPY) suffered steep losses, prompting Japanese Prime Minister Shigeru Ishiba to urge continued trade dialogue with Washington, in hopes of averting a broader economic fallout.
In contrast, the INR rebounded modestly, with the correction in the DXY offering further support. However, market participants remain cautious, seeking details of the upcoming Federal Reserve (Fed) policy cues before making directional bets.
Investors Eye FOMC Minutes and US Rate Path
Attention now shifts to the release of the Federal Open Market Committee (FOMC) minutes from the June 17-18 policy meeting, scheduled for Wednesday. The minutes are expected to provide clarity on the Fed’s inflation outlook, growth expectations, and the likelihood of any future rate adjustments.
The Fed held rates steady at 4.25%-4.50% during its June meeting, the fourth consecutive pause, but warned of potential stagflation risks. Fed Chair Jerome Powell emphasized that ongoing tariff actions could be inflationary and might suppress economic activity.
Indian Equities Mixed as Markets Await Clarity
Back in India, domestic equity markets opened on a cautious note, reflecting a wait-and-see stance ahead of any official confirmation of the India-US trade pact. The Nifty50 index ticked down 0.13% to around 25,425, while the Sensex30 edged slightly lower below the 83,400 mark.
Market sentiment may improve as India’s Q1 FY25-26 earnings season kicks off with Tata Consultancy Services (TCS) reporting on July 9. Corporate earnings will likely be a key catalyst for short-term moves in INR-sensitive assets.
Technical Analysis: USD/INR Seeks Direction Around 20-Day EMA
From a technical standpoint, the USD/INR pair is trading within Monday’s range and is attempting to stabilize near the 20-day Exponential Moving Average (EMA), located around 85.90. The pair’s failure to decisively break above or below this moving average suggests a neutral near-term trend.
The 14-day Relative Strength Index (RSI) has rebounded to the 50.00 level, indicating a balance between bullish and bearish momentum. A sustained RSI breakout above 60.00 would signal the resumption of upward momentum, while a breakdown below 40.00 could suggest renewed bearish pressure.
Conclusion
The USD/INR correction seen on Tuesday reflects a shift in market tone as hopes of a US-India trade pact intensify amid positive rhetoric from the US President. While tariff tensions and political risk continue to cloud the broader landscape, the short-term outlook for the Indian Rupee appears constructive, supported by improving sentiment and a cooling US Dollar.
However, with the FOMC minutes, earnings season, and global trade dynamics all in play, traders should brace for potential volatility spikes in both currencies and equities. A firm resolution to the India-US trade dispute could serve as a major tailwind for the INR, while any derailment would likely trigger a sharp risk-off move.
