USDINR NEAR SUPPORT LEVEL !!

On Tuesday, the Indian Rupee strengthened after reaching a four-month high in the previous session. The rise in Indian stock markets might support the currency. Additionally, worries about tariffs and US President Donald Trump's criticism of US Federal Reserve Chair Jerome Powell could potentially weaken the US Dollar, which would favor the INR.

Conversely, market participants are closely monitoring the Reserve Bank of India (RBI), which appears to be actively purchasing USD to temper the Indian Rupee's (INR) rise against the dollar. This strategy is indicative of the RBI's efforts to manage the currency's strength in a way that supports the broader economic objectives of the country. By intervening in the foreign exchange market, the RBI aims to prevent excessive appreciation of the INR, which could potentially harm India's export competitiveness. A stronger rupee may lead to reduced earnings for exporters, as their goods become more expensive for foreign buyers, thus impacting the overall trade balance.

Furthermore, expectations are building around a potential interest rate cut by the RBI in the upcoming policy meeting. Such a move could exert additional pressure on the local currency, as lower interest rates typically make a currency less attractive to foreign investors seeking higher returns. The anticipation of a rate cut is fueled by recent economic indicators, which suggest that the RBI may be inclined to adopt a more accommodative monetary policy stance in response to changing economic conditions.

Recent data indicates that India's inflation rate fell to its lowest level in over five years in March, significantly below the RBI's midpoint target of 4%. This decline in inflation could provide the RBI with the necessary leeway to consider reducing interest rates, as lower inflation generally correlates with a more stable economic environment. The decrease in inflation is attributed to various factors, including a reduction in food prices and a stabilization of global commodity prices, which have contributed to easing price pressures domestically.

As the RBI navigates these complex economic dynamics, market participants are keenly aware of the implications that both currency interventions and potential interest rate adjustments may have on the broader financial landscape. Investors are particularly focused on how these decisions will influence capital flows, foreign investments, and overall economic growth in India. The interplay between currency strength, interest rates, and inflation will continue to be a critical area of observation for those looking to understand the future trajectory of the Indian economy.

US-India trade developments

• Prime Minister Narendra Modi of India and US Vice President JD Vance acknowledged "significant progress" in the talks regarding a Bilateral Trade Agreement (BTA).

• The US Trade Representative finalized the Terms of Reference for negotiations, setting a roadmap for economic discussions.

• US President Donald Trump criticized Fed Chair Powell for a "wait and see" approach on monetary policy amid tariff policy impacts.

• Trump warned the US economy might slow unless Powell reduces interest rates immediately.

• White House economic adviser Kevin Hassett mentioned exploring the possibility of dismissing Fed Chair Powell.

USD/INR’s outlook

The Indian Rupee is experiencing a stronger performance. Nonetheless, traders should note that its value is still limited below the crucial 100-day EMA on the daily chart, suggesting that the longer-term downtrend is still in effect. This downward momentum is further confirmed by the 14-day RSI, which is positioned below the midline at about 34.10. 

The key support level for USD/INR is firmly positioned in the 85.00-84.95 range, marking both a psychological threshold and the lower boundary of the descending trend channel. If bearish pressure intensifies, the pair is poised to decline towards 84.53, the low recorded on December 6, 2024. Another critical downside level to watch is 84.22, the low from November 25, 2024. 

Conversely, the 100-day EMA at 85.85 acts as an immediate resistance level for the pair. Should the USD/INR maintain a position above this threshold and attract buying interest, it may target 86.55, which represents the upper boundary of the trend channel.

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