USD/INR Under Pressure as Trump's Threats & Weak Liquidity During Diwali Holidays

The Indian currency markets will remain closed on Tuesday and Wednesday due to Diwali Laxmi Pujan and Balipratipada holidays. During these holidays, the market will suffer from weak liquidity. In this situation, we can not accurately anticipate where the USD/INR would move. The currency pair will likely remain trading within the same range until liquidity returns to its normal levels.

In this article, we will review the factors influencing USD/INR and its reaction, Trump’s threats for India, the latest updates on US-China trade tensions, and the Technical outlook for the USD/INR.

The Key Factors Influencing The USD/INR:

U.S. President Donald Trump has threatened India that the tariffs on its imports will remain in effect unless India stops buying oil from Russia.
Donald Trump re-threatened with tariffs over the weekend and said that India will halt russian oil imports.
The Indian ministry denied Trump’s claim that PM Narendra Modi has assured that New Delhi will halt buying oil from Moscow.
These threats would hurt India’s export competitiveness and, in return, would reduce dollar inflows. Additionally, these trade tensions between India and the US can cause foreign investors to pull back, increasing demand for the USD.
Moreover, India heavily relies on russian oil. If India reduces oil imports, it may have to buy more expensive oil elsewhere, which will worsen its trade deficit and pressure the INR.

The trade tensions between India and Washington have been ongoing for the past few months due to the massive oil purchases from Russia. Washington raised tariffs on Indian imports to 50%, which resulted in a significant negative impact on the indian rupee and outflow of foreign funds from the indian stock market.

Foreign Institutional Investors (FIIs) in India Updates:

During October, selling in Indian equities is way lower in comparison with the sell-off that took place in the period from July to September. FIIs have sold shares worth 586.76 crores.

Lower FII outflows would improve market sentiment toward USD/INR. Post-holiday liquidity return may amplify these effects. This will lead to mild appreciation or range-bound movement in the INR. The USD/INR pair may trade slightly lower if FII activity remains stable and no new geopolitical shocks emerge.

US-China Trade War Eases but Fails to Support USD/INR:

After the US President Donald Trump announced that the additional 100% tariffs on imports from Beijing to Washington will not be sustainable. The US Dollar gained some ground as trade tensions have eased.

Trump signaled that his meeting with Xi Jinping in South Korea later this month will be a cooperation meeting. Trump said, ” I think we’re going to be fine with China, but we have to have a fair deal. It’s got to be fair.”

With these comments made by Trump, the US Dollar appreciated to 98.85 highs. Markets’ mood improves due to “fair deal”. This is helping the USD/INR move lower. But we have to consider that markets may remain cautious until concrete agreements emerge. It suggests that USD/INR could trade in a tight range even after liquidity returns to its normal levels, waiting for the outcomes of the Trump-Xi meeting.

The Key Outcomes from the video call between the U.S. Treasury Secretary Bessent, U.S. Trade Representative Greer, and Chinese Vice Premier He Lifeng:

Both parties focused on implementing the consensus reached by the two heads of state earlier this year.
They agreed to hold a new round of China-U.S. economic and trade consultations as soon as possible.
Scott Bessent stated that an in-person meeting is expected next week to continue these discussions.
The conversation between both parties affirms an ongoing commitment to reengagement. The US officials assured that China wants to negotiate, while Trump hinted at possible flexibility on the November 1 tariff deadline.
This conversation can be considered as a preparatory step before the upcoming Trump-Xi meeting in South Korea.

The Technical Outlook for the USD/INR:

From the technical perspective, the USD/INR starts this week under pressure and drops to 88.29. The RSI fell below the 40.00 level yesterday. Today, the RSI gets back to the 45.00 level, which indicates a bullish correction fueled by improved market moods.

What factors most influence the USD/INR pricing?

The US interest rates are one of the factors; when the Fed raises rates, the US Dollar strengthens as investors move toward higher-yielding assets, pushing the USD/INR higher. The inflation rate in India is another factor; rising inflation can weaken the rupee by reducing its purchasing power, which leads the Reserve Bank of India to maintain policy flexibility. Oil prices can also affect the USD/INR because India imports over 80$ of its crude oil. Higher oil prices increase dollar demand, which can weaken the rupee. Foreign investors’ inflows into Indian markets support the rupee, while heavy outflows tend to weigh on the rupee and strengthen the dollar.

How does RBI intervention impact the USD/INR movements?

The RBI is responsible for monitoring the USD/INR pair and preventing excessive volatility. For example, if the rupee depreciates sharply, the RBI will sell US dollars from its foreign exchange reserves to balance or stabilize the currency. Conversely, when the rupee appreciates too fast, it may buy dollars to stabilize the export competitiveness.