April 2, 2024
New Delhi, India
USDINR
The Indian Rupee (INR) edged lower in Wednesday’s Asian session after posting its best monthly gain in over six years in March. A recent surge in foreign portfolio inflows—nearly $4 billion in equities and bonds reversing previous outflows of around $12 billion—had helped boost the rupee. However, renewed uncertainty over US trade policies is now weighing on the currency.
Tariff Concerns Loom Large
US President Donald Trump is set to unveil a new round of “reciprocal tariffs” on his trading partners later on Wednesday. Analysts warn that these tariffs could trigger sudden trade barriers on countries that already impose duties on US goods, which may disrupt global trade and affect growth prospects. US Treasury Secretary Scott Bessent noted that the tariffs, once announced, will be at their highest levels—though foreign nations may later act to reduce them.
Key US Economic Data
Adding to market uncertainty, the US March ADP Employment Change report is due later today. Meanwhile, the US ISM Manufacturing PMI fell to 49.0 in March from 50.3 in February, missing the consensus forecast of 49.5. Chicago Fed President Austan Goolsbee remarked that while US hard data remain strong, softer data indicate growing inflation fears and uncertainty among investors.
RBI and Market Outlook
The Reserve Bank of India (RBI) is expected to announce its interest rate decision next week. A Reuters poll of economists anticipates just one further rate cut in August—the shortest easing cycle on record—which might exert additional downward pressure on the rupee. Kotak Institutional Equities noted that despite recent gains driven by a weaker US Dollar and RBI’s flexible exchange policy, key risks remain for India’s external balance due to volatile US trade and tariff policies.
Analysis
Investors are now balancing the positive impact of recent foreign inflows against the looming threat of Trump’s tariff announcement. The new US trade measures could hurt global growth by sparking retaliatory actions from affected countries. For India, any escalation in US tariffs would increase uncertainty, especially if reciprocal tariffs lead to disruptions in trade flows. As global markets brace for further US economic data releases and Fed commentary, the rupee’s short-term performance appears vulnerable.
Market watchers will closely track the unfolding data today—from the ADP report to remarks from Fed officials—since these indicators will influence both US monetary policy and global investor sentiment. In this environment, the interplay of robust domestic growth indicators and external trade uncertainties will shape the INR’s trajectory in the coming weeks.
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