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Us Dollar Dynamics
The Indian Rupee concurrently weakens against the US Dollar for the third day, influenced by the Federal Reserve’s policy outlook. Despite maintaining interest rates at 4.25%–4.50%, the Fed’s statement highlights inflation and unemployment risks.
Tensions between India and Pakistan contribute to the Rupee’s pressure, as India conducts strikes in response to a militant attack in Kashmir. Reduced concerns over this conflict lead to eased Indian bond yields, with the 10-year G-Sec yield around 6.33%.
Recent data shows India’s inflation at a five-year low and GDP growth reducing to 6.5%. This prompts the central bank to shift focus to growth.
The US Dollar Index remains strong, trading near 99.70, with the Fed’s future stance and potential rate cuts being monitored. High-level US-China tariff talks aim to navigate the ongoing trade dispute.
Indian equity markets see a rise in Domestic Institutional Investors over Foreign ones, propelled by domestic mutual fund inflows. The Services PMI shows consistent expansion, scoring 58.7 in April 2025.
Trading Position Analysis
The USD/INR trades around 84.60, displaying a bearish outlook. Technical charts indicate potential support at 84.00, with resistance levels identified at 86.10 and 86.71. US labour market indicators offer insights, with initial jobless claims reflecting on USD movement.
While the Rupee remains under visible pressure, its steady slide over three consecutive sessions reflects a combination of domestic moderation and international resilience in the Dollar. The Federal Reserve, in holding its benchmark rate, signals that while rates may not climb further immediately, concerns surrounding persistent inflation aren’t dismissed. It’s this wait-and-watch mode by the Fed that’s keeping the greenback appealing for now. Particularly when American jobless claims come in within expectations — not too cold to suggest a downturn but not hot enough to invite hawkish policy shifts.
However, the story isn’t just transatlantic. On the subcontinent, geopolitical strain — triggered by India’s precise retaliatory actions following unrest in Kashmir — has quietly layered uncertainty over regional assets. While initial volatility pressured the Rupee downward, markets seem to be recalibrating expectations amid reports of de-escalation. This moderation in perceived risk has trickled into the bond space. Government securities, especially on the longer end such as the 10-year benchmark, have responded with softening yields, underscoring a cautious return of risk appetite.
What stands out sharply in recent data is the drop in inflation to levels not seen for half a decade. Paired with a deceleration in GDP growth to about 6.5%, the Reserve Bank now has room to realign its focus more clearly. With growth edging down and inflation well-behaved, our view is that the central bank is weighing a more accommodative stance in the medium term, should economic momentum continue to slacken.
Outside the macro beat, equity flows distinguish themselves. Domestic Institutional Investors, growing increasingly assertive in recent quarters, have stepped into any foreign exit gaps. This higher activity remains fuelled by steady inflows into mutual funds and other retail-heavy vehicles — pointing to a resilient undercurrent in retail sentiment despite broader risk-off tones globally.
Technically, the USD/INR exchange reveals a picture laced with hesitation. The breach of 85 levels brought temporary Dollar strength, but key resistance at 86.10 and 86.71 continues to repel upward movement. On the flip side, 84.00 stands out as immediate support — a breach there could reintroduce volatility into short-term positions. We’re observing that the current consolidation range is testing the patience of momentum-driven strategies.
Looking at indicators likely to jolt the cross, we’re closely eyeing upcoming NFP prints and unemployment figures from the US. Any evidence of softening in the American labour market could dull the Dollar’s edge, especially if policy doves find reason to push harder for a rate trim. Traders holding positions on rate-sensitive instruments should tread carefully around macro release windows, as spikes in realised volatility may not align with overnight implied levels.
On a bigger horizon, conversations between Washington and Beijing around tariff relief have been long in the making. Though the noise has subsided, any trade-related headlines could still surface unexpectedly and add directional risk. Such external triggers, even if seemingly peripheral, have a way of slipping back into currency valuations — particularly when local catalysts seem muted.
In this moment where flows are driven mostly by the strength of the Dollar and global investors’ willingness to rotate money back into safer US assets, volatility around the Rupee remains inherent but manageable. We plan to maintain tighter stops during lean liquidity hours, especially given how quickly any geopolitical flare-up could prompt algorithmic participation in the FX market.
No immediate reversal is expected unless a material shift occurs either in Fed rhetoric or India’s growth outlook. We’re treating the support around 84 as a pivot for the short-term range, adjusting exposure upward only if price action indicates a solid defense of that level. For now, eyes stay on external data and risk sentiment to shape directional conviction.
