The USD/INR rises slightly at the opening before the U.S. non-farm payroll data.

• The Indian rupee marginally falls to around 88.30 against the US dollar at the opening.
• Investors are preparing for significant action in the USD/INR pair following the release of the U.S. non-farm payroll data.
• India's Commerce Minister, Goyal, is confident in strengthening the Indian rupee.

The Indian rupee (INR) slightly declines at the opening against the US dollar (USD) this Friday. Overall, the USD/INR pair is trading sideways above 88.00 after reaching a new all-time high earlier this week.

The overall outlook for the Indian rupee remains uncertain amid trade tensions between the United States and India. In August, Washington raised tariffs on imports from India to 50% (partly due to the purchase of Russian oil and for failing to reach a trade agreement).

The imposition of nearly higher tariffs by the U.S. compared to other key trading partners has decreased the competitiveness of Indian products in the global market.

In response to the Indian rupee's quotation near its historical low against the US dollar, India's Minister of Commerce and Industry, Piyush Goyal, assured in an interview with Network18 on Thursday that the government is “monitoring the situation and we [the administration] are very confident that things will return to normal in the near future,” as reported by Moneycontrol.

India's Commerce Minister, Goyal, also praised the streamlining of the Goods and Services Tax structure (GST), stating that the increase in consumption resulting from the GST reforms will offset the revenue loss from the tax revision. On Wednesday, India's Finance Minister, Nirmala Sitharaman, abolished the four-tier GST framework and announced that there will only be two tax slabs: 5% and 18%.

Regarding the flow of foreign funds into Indian stock markets, a slowdown in sales by Foreign Institutional Investors has been observed. On Thursday, FIIs reduced their stake in the Indian equity market by 106.34 crores of rupees. The selling pace of FIIs appears to be moderate compared to the massive sell-off observed in July and August.

Daily market factors summary: The US dollar is expected to trade sideways ahead of the US non-farm payroll data.

• The USD/INR pair has traded generally sideways during the last trading sessions. Investors are preparing for a unilateral move in the pair after the release of the U.S. non-farm payroll data (NFP) for August, which will be announced at 12:30 GMT.
• At the time of writing this report, the U.S. dollar index (DXY), which tracks the value of the dollar against six major currencies, has dipped slightly to around 98.15.
• Investors will closely watch the official U.S. employment data for new clues about the monetary policy outlook of the Federal Reserve (Fed) for the rest of the year.
• According to the CME FedWatch tool, traders have fully priced in a 25 basis point cut in interest rates by the Fed for the September policy meeting. Expectations for a more dovish Fed intensified after the July NFP report showed a significant downward revision of the payroll data for May and June.
• The August NFP report is expected to show that U.S. employers hired 75,000 new workers, nearly in line with the previous reading of 73,000. The unemployment rate is forecasted to rise to 4.3% from the prior 4.2%. Meanwhile, average hourly earnings, a key measure of wage growth, are expected to have grown at an annual rate of 3.7%, slower than July's 3.9%. On a monthly basis, the wage growth measure grew steadily by 0.3%.
• On Thursday, the U.S. ADP Employment Change data showed signs of a slowdown in labor demand. The private sector hired 54,000 new workers, below the estimates of 65,000 and the previous reading of 106,000.
• Looking to the future, investors will also focus on the U.S. Supreme Court's ruling on the tariffs imposed by President Donald Trump since his return to the White House. Recently, the U.S. Court of Appeals ruled that most of the additional duties were “illegal” and accused Trump of wrongly invoking the emergency law.

Technical Analysis: USD/INR trades sideways above 88.00

The USD/INR rises slightly to around 88.30 at the Friday open. The short-term trend of the pair remains bullish as it stays above the 20-day Exponential Moving Average (EMA), which is trading near 87.73.

The 14-day Relative Strength Index (RSI) is trading calmly above 60.00, suggesting that a new bullish momentum has occurred.

Looking down, the 20-day EMA will act as a key support for the pair. On the bullish side, the pair has entered unknown territory. The round figure of 89.00 would be the key obstacle for the pair.

Frequently Asked Questions about the Indian Rupee

( What are the key factors driving the Indian rupee?

The Indian rupee )INR### is one of the currencies most sensitive to external factors. The price of crude oil (the country largely depends on imported oil), the value of the US dollar -most trade is conducted in USD- and the level of foreign investment are all influencing factors. The direct intervention of the Reserve Bank of India (RBI) in the foreign exchange markets to maintain a stable exchange rate, as well as the level of interest rates set by the RBI, are other important factors that influence the rupee.

( How do the decisions of the Reserve Bank of India affect the Indian rupee?

The Reserve Bank of India )RBI### actively intervenes in the foreign exchange markets to maintain a stable exchange rate and facilitate trade. Additionally, the RBI seeks to keep the inflation rate at its target of 4% by adjusting interest rates. Higher interest rates typically strengthen the rupee. This is due to the role of “carry trade,” where investors borrow in countries with lower interest rates to place their money in countries that offer relatively higher interest rates and benefit from the difference.

( What macroeconomic factors influence the value of the Indian rupee?

Among the macroeconomic factors influencing the value of the rupee are inflation, interest rates, the economic growth rate )GDP###, the trade balance, and foreign investment inflows. A higher growth rate can lead to more foreign investment, increasing the demand for the rupee. A less negative trade balance will ultimately lead to a stronger rupee. Higher interest rates, especially real rates (interest rates less inflation), are also positive for the rupee. A risk appetite environment can lead to greater inflows of Foreign Direct and Indirect Investment (FDI and FII), which also benefits the rupee.

( How does inflation affect the Indian rupee?

Higher inflation, particularly if it is comparatively higher than that of India's peers, is usually negative for the currency, as it reflects a devaluation due to oversupply. Inflation also increases the cost of exports, leading to more rupees being sold to purchase foreign imports, which is negative for the rupee. At the same time, higher inflation often leads the Reserve Bank of India )RBI### to raise interest rates, which can be positive for the rupee due to increased demand from international investors. The opposite effect is true for lower inflation.