The Indian Rupee strengthens against the US Dollar, with the USD/INR pair reaching a monthly low near 85.40. This movement follows a decrease in the US Dollar, ahead of the US Nonfarm Payrolls data for June, set to release at 12:30 GMT. The report is anticipated to show a reduction in the workforce increase, with 110,000 new jobs expected compared to 139,000 in May. The Unemployment Rate is predicted to rise to 4.3% from 4.2%.

Additionally, Average Hourly Earnings data, an important wage growth metric, is projected to increase by 3.9% year-on-year. However, the month-on-month growth for June is expected to slow to 0.3%, down from May’s 0.4%. Recent ADP Employment Change data indicates a decline in the private sector’s labour force for the first time since the pandemic, with businesses laying off 33,000 employees instead of the anticipated hiring of 95,000 workers.

Tensions Around Tariff Policies

Tensions around tariff policies influence Foreign Institutional Investors, causing them to sell Indian equities worth Rs. 3,531.76 crores in early July. Concerns about the US debt ceiling have surfaced following a tax and spending bill perceived to raise the debt burden to $40 trillion within a decade. The USD/INR pair’s near-term trend remains bearish, trading below the 20-day Exponential Moving Average and with the 14-day Relative Strength Index under 50.00.

Given the recent downturn in the USD/INR pair to a monthly low near 85.40, we see renewed downside bias gaining traction. The current setup finds its footing as markets digest a softer-than-expected US Dollar, mostly ahead of the new labour data. This is not entirely surprising—it often signals that traders may be pricing in a weaker footing for US economic momentum over the short term.

The key figure to watch remains the Nonfarm Payroll report. With only 110,000 new positions expected, down from May’s 139,000, the pace of hiring appears to be decelerating. Should this reduction materialise as forecast, it could reinforce the view that the Federal Reserve’s monetary tightening might be grinding to a standstill sooner than expected. The projected uptick in the unemployment rate to 4.3% adds weight to this case, especially when paired with declining private sector employment from ADP. The recent print of 33,000 job losses, against expectations for strong hiring, pushes the narrative further away from labour market resilience.

Wage Growth And Market Reactions

More pointedly, Average Hourly Earnings—a favoured inflation indicator for policymakers—is forecast to maintain broader annual wage growth at 3.9%. While that seems firm, the drop in monthly pay growth to 0.3% shows softening labour costs underneath the surface. This nuanced change is something markets tend to read into quickly, particularly in pricing in future policy expectations. If wage momentum loses steam, it may deflate arguments that inflation will remain stubborn due to salary dynamics.

Meanwhile, there’s clear evidence of investment outflow pressures. With Foreign Institutional Investors offloading over ₹3,500 crores of Indian equities in just the early days of July, portfolio strategies appear to be shifting away from risk. This selling pressure may be partly linked to international uncertainty, especially surrounding proposed tariff actions and growing fiscal imbalances in the US. The renewed debate over America’s mounting debt—now forecasted by some to balloon to $40 trillion within a decade—could rattle global market confidence, encouraging a flight from dollar assets.

Technically, the bearish drift remains intact. As the pair remains lodged beneath the 20-day EMA and with the Relative Strength Index stuck under 50, there’s little evidence—at least for now—of an imminent reversal. The current chart pattern suggests further selling may still be on the table, especially if weaker US data confirms softening momentum. Any bounce towards previous resistance should be viewed with caution, as it might merely be a corrective pullback rather than the beginning of a sustained move upward.

From a strategic standpoint, care is warranted in chasing short-term rallies in the Dollar unless there’s a sharp surprise in economic indicators. Diverging inflation paths and rate expectations continue to dictate flow direction. We remain attentive to near-term volatility spikes around data releases, while watching whether consolidation below major technical thresholds gives way to a stronger decline.

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