USD/INR tumbles amid possible equity inflows, traders await US NFP data

By Admin

02 May, 2025

The Indian Rupee (INR) is holding firm in Friday’s early European session, drawing strength from multiple domestic and global factors. As the USD/INR pair extends its downward trajectory, all eyes turn to the upcoming US Nonfarm Payrolls (NFP) report, which could provide key cues for the currency market going forward.

INR Gains on Inflows and Exporter Dollar Sales

The Indian Rupee is witnessing a rally, backed by foreign portfolio inflows into Indian equities. Stronger equity markets are encouraging foreign investors, while local exporters continue to sell US Dollars as part of their hedging strategies, further strengthening the INR. Moreover, growing optimism surrounding a potential trade agreement between India and the United States is giving the Indian currency an additional boost.

India’s March performance was noteworthy, with the Rupee appreciating over 2%—its best monthly gain since November 2018. MUFG Bank commented that a weaker US Dollar and expectations of a more dovish US Federal Reserve policy could support various Asian currencies, including the INR.

Geopolitical Tensions Could Cap Gains

Despite the positive momentum, the INR’s upside may be capped by geopolitical risks. The recent escalation in tensions between India and Pakistan could weigh on investor sentiment. Pakistan has claimed to possess “credible intelligence” suggesting potential imminent Indian military action, just a week after a deadly attack in India-administered Kashmir that claimed 26 lives. Such developments may limit the INR’s bullish run.

All Eyes on US Nonfarm Payrolls

Friday's key market focus is the release of the US April employment data, especially the Nonfarm Payrolls (NFP), the Unemployment Rate, and Average Hourly Earnings. Analysts anticipate a 130,000 increase in job additions and expect the Unemployment Rate to hold steady at 4.2%.

Recent US data has presented a mixed picture. The weekly Initial Jobless Claims rose more than expected to 241,000, while the ISM Manufacturing PMI inched lower to 48.7 but still beat forecasts. Additionally, the US economy contracted by 0.3% in Q1 2025, falling short of the projected 0.4% decline. These figures have fueled speculation that the US Federal Reserve may begin cutting interest rates as early as June, with futures pricing in four rate cuts by year-end, potentially pushing the rate band down to 3.25%-3.50%.

USD/INR Technical Outlook

The USD/INR pair continues to trade with a bearish bias, staying below the crucial 100-day Exponential Moving Average (EMA). However, caution is warranted as the 14-day Relative Strength Index (RSI) has slipped below the 30.00 mark, suggesting that the pair is in oversold territory. A phase of consolidation or a minor technical rebound cannot be ruled out.

Key technical levels to watch include a support zone near 84.22 (November 25, 2024 low) and a further downside target at 84.08 (November 6, 2024 low). On the upside, immediate resistance lies at 85.14 (April 23 low), followed by 85.72 (100-day EMA) and then 86.25, the upper trend channel boundary.

Conclusion

The Indian Rupee remains firm, supported by favorable capital inflows and exporter-driven USD sales. However, geopolitical risks and upcoming US employment data could heavily influence the USD/INR pair in the near term. The NFP report holds the key to future price action, and traders are likely to remain cautious until clearer signals emerge from US labor market dynamics.