The Indian Rupee is stabilizing against the US Dollar, with the USD/INR exchange rate around 85.55. Traders are hopeful for a trade agreement between India and the US before the tariff deadline on July 9. Meanwhile, the US Dollar Index has eased a bit below 97.00, and US markets are closed for Independence Day. A report indicates that India and the US might announce a trade agreement within 48 hours. Both nations are working to lower tariffs to enhance competition, while India seeks to protect its agriculture and labor sectors from US firms. The US President mentioned that the agreement would allow US companies to enter India with reduced tariffs.

Impact of Foreign Investors

Foreign Institutional Investors have sold Indian stocks worth Rs. 5012.95 crore as they prepare for the tariff deadline. As a result, Nifty and Sensex are trading slightly lower. President Trump is considering additional import duties on countries that do not have trade agreements. US job data showed stronger hiring than expected, with 147,000 new jobs created. Public sector jobs increased more than private ones, likely due to tariff uncertainties. Weakening job markets might lead the Federal Reserve to think about cutting interest rates, but traders reduced their bets on a rate cut after positive job data. The USD/INR exchange rate is under pressure, remaining below key averages. Support is around 85.10, with resistance at 86.13. The trend is currently bearish, and the RSI suggests possible further declines. The Rupee’s recent stability near 85.55 against the Dollar reflects current sentiments regarding upcoming trade discussions. Talks of a potential agreement between India and the US within the next two days are significant. If an agreement happens before the July 9 tariff deadline, it could provide short-term relief for capital markets. However, the specifics, particularly about agriculture and labor protections, will significantly affect expectations for trade volumes and foreign investments. Additionally, foreign investors have been pulling back from Indian equities, selling over Rs. 5000 crore. When uncertainty rises, it’s common for institutional capital to withdraw strategically. This selling isn’t random; these investors are likely protecting themselves against worsening global trade conditions if negotiations fail. This exit can impact domestic indices, especially sectors sensitive to global trade and growth.

Market Reactions and Sentiment

The decline in Nifty and Sensex aligns with this perspective. There is limited fresh buying to counteract the outflows, likely due to muted participation ahead of major policy guidance. However, if US-India negotiations yield favorable low-tariff arrangements for technology or manufacturing imports, infotech and capital goods stocks might recover faster. On the other hand, prolonged delays may worsen the outflow trend. The movements in the dollar index during the US holiday stayed just below 97.00 and were minimal, but even small changes can influence rupee exchange rates. A weaker dollar often coincides with better commodity and forex sentiment across Asia, which might help buffer any short-term rupee weakness. US labor data showed 147,000 jobs added—healthy on the surface, but predominantly in government hiring. This suggests a cautious approach rather than significant demand growth and is likely influenced by trade tensions. Private firms seem hesitant, affecting speculation about Federal Reserve rate adjustments. All these factors may keep moderate pressure on the USD/INR pair. Price actions indicate difficulty breaking above the resistance at 86.13, while short-term support around 85.10 could be revisited if equity outflows continue. The technical outlook remains negative, with RSI readings suggesting further loss of momentum. For those trading derivatives, this situation might lead to wider option spreads as volatility increases closer to the tariff deadline. It’s also likely that smaller position sizes will become more common, with market participants looking to decrease exposure to risk amid potential policy surprises. This cautious but rational approach anticipates currency futures reflecting reduced exposure while preparing for unexpected announcements. Currently, all attention is on whether clear commitments will appear before July 9. If they do, it will be interesting to see if the rupee can rebound or if markets will adjust for new risks ahead. Create your live VT Markets account and start trading now.

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