Key Moments
- USD/INR advanced for a third straight session, trading near 95.40 during Asian hours on Tuesday as risk aversion supported the US Dollar.
- India’s foreign exchange reserves retreated from a peak of $728.5 billion while equity outflows reached $19 billion across March and April.
- HSBC Manufacturing PMI for India was revised to 54.7 for April from a preliminary 55.9, remaining above 53.9 in the prior month.
Risk-Off Flows Boost USD/INR
USD/INR extended its advance for a third consecutive day, hovering around 95.40 during Asian trading on Tuesday. Market participants are set to monitor India’s HSBC Composite and Services Purchasing Managers’ Index (PMI) readings, which are scheduled for release on Wednesday.
The pair continued to appreciate as the US Dollar (USD) gained support from safe-haven flows following Iran’s attack on the United Arab Emirates (UAE). According to CNBC on Monday, Iranian drones and missiles targeted the UAE, while the United States (US) reported it had destroyed Iranian boats in the Strait of Hormuz. US President Donald Trump warned that Iran would be “blown off the face of the earth” if it targets US ships protecting commercial vessels transiting the Strait of Hormuz.
Oil Price Volatility and Rupee Sentiment
The Indian Rupee (INR) came under pressure as a sharp overnight jump in crude oil prices weighed on risk appetite. Subsequently, oil prices eased as fears of immediate supply disruptions moderated, with the US Navy taking action to reopen the key Strait after Iran attempted to shut it. Maersk, the Danish shipping and logistics company, later confirmed that its Alliance Fairfax, a US-flagged vehicle carrier, had exited the Strait under US military escort.
Domestic Politics and Macro Data
On the political front, Indian Prime Minister Narendra Modi’s Bharatiya Janata Party (BJP) secured a third consecutive term in Assam and gained control of West Bengal, a former opposition stronghold, in a key election.
On Monday, the HSBC Manufacturing PMI for India printed at 54.7 for April, revised down from the preliminary 55.9 but above the previous month’s 53.9. Output and new orders continued to rise, although the pace of expansion remained softer than levels observed over the last three and a half years.
Flows, Earnings, and Reserves
Foreign institutional investors (FII) turned net buyers of Indian equities on Monday after nine straight sessions of selling, posting inflows of 28.36 billion rupees ($298 million). Domestic institutional investors (DII) purchased 47.64 billion rupees of local shares, marking their seventh consecutive day of net buying, according to Reuters.
Stock-specific activity tied to corporate earnings is also expected to be an important driver. Nifty 50 members Larsen & Toubro, Mahindra and Mahindra, and Hero MotoCorp are slated to report their quarterly results later in the day.
India’s foreign exchange reserves have pulled back from a peak of $728.5 billion, while equity markets saw outflows totaling $19 billion during March and April. The Reserve Bank of India (RBI) has indicated it remains comfortable with current reserve levels, noting they are sufficient to cover 11 months of imports. At the same time, recent policy discussions have underscored a renewed focus on rebuilding buffers in the face of continuing capital outflows.
USD/INR Technical Picture: Testing Record Highs
USD/INR was trading close to 95.40 on Tuesday, with the daily chart signaling the potential for a renewed bullish breakout as the pair challenges the upper boundary of a rectangular trading range.
The near-term technical bias remains constructive, with spot prices holding above both the nine-day and 50-day Exponential Moving Averages (EMAs). The 14-day Relative Strength Index (RSI) stands at 66.7, indicating strong upward momentum and approaching overbought territory. This suggests that bullish pressure persists, although the setup leaves room for consolidation if buying interest fades.
The pair is currently testing the top of the rectangle pattern, followed by the all-time high of 95.40, which was set on May 4. On the downside, initial support is located at the nine-day EMA at 94.71. A sustained move below this short-term average would expose the 50-day EMA at 93.20, with subsequent support at the lower boundary of the rectangle near 92.50 and a seven-week low at 92.14.
(The story was corrected on May 5 at 6:10 GMT to say in the first paragraph to say that the HSBC PMI data will be released on Wednesday, not Tuesday.)
Dollar Performance Against Major Currencies
The table below presents the percentage changes of the US Dollar (USD) against major currencies today. The US Dollar showed the strongest performance versus the Australian Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | INR | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.04% | 0.06% | 0.00% | -0.02% | 0.16% | 0.10% | 0.14% | |
| EUR | -0.04% | 0.00% | -0.02% | -0.03% | 0.12% | 0.06% | 0.25% | |
| GBP | -0.06% | -0.00% | -0.04% | -0.08% | 0.10% | 0.07% | 0.09% | |
| JPY | 0.00% | 0.02% | 0.04% | -0.01% | 0.15% | 0.11% | 0.30% | |
| CAD | 0.02% | 0.03% | 0.08% | 0.00% | 0.16% | 0.11% | 0.32% | |
| AUD | -0.16% | -0.12% | -0.10% | -0.15% | -0.16% | -0.04% | 0.15% | |
| NZD | -0.10% | -0.06% | -0.07% | -0.11% | -0.11% | 0.04% | -0.01% | |
| INR | -0.14% | -0.25% | -0.09% | -0.30% | -0.32% | -0.15% | 0.01% |
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