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The Indian rupee (INR) weakened against the US dollar (USD) during the Asian session on Wednesday. The USD/INR pair extended gains for the second consecutive session amid a strengthening US dollar (USD) as traders turned cautious ahead of the Federal Reserve (Fed) rate decision, which is expected to be announced during the North American session.
The USD/INR pair is likely to continue to face resistance as the Indian rupee (INR) tracks gains in domestic assets, with India’s relatively low reliance on exports helping to cushion the impact of US tariffs. In addition, limited capital outflows also supported the Indian rupee as increased oil production from OPEC+ and US economic growth concerns put pressure on crude and fuel prices, which are key components of India’s import bill.
Recent data showed that India’s inflation rate fell to its lowest level in five years in March, well below the Reserve Bank of India’s (RBI) medium-term target of 4%. Meanwhile, GDP growth slowed to 6.5% in the last fiscal year, down from 8.2% previously, prompting the central bank to prioritize growth.
While these factors supported the Indian rupee, the USD/INR pair gained on importers’ hedging demand and possible dollar-buying intervention by the Reserve Bank of India (RBI), which is expected to continue to bolster its foreign exchange reserves.
Geopolitical tensions were also on the rise, with India striking Pakistan and Pakistan-controlled Kashmir in Operation Sindhu, which came two weeks after a deadly militant attack in Indian-controlled Kashmir. The Indian Ministry of Defense characterized the operation as a response to an April 22 attack that killed 25 Indians and one Nepalese national. Pakistan denied involvement and condemned the strike as “unprovoked,” with Pakistani Prime Minister Shehbaz Sharif vowing revenge, the BBC reported.
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