Ahead Today
G3: US ISM Services, Eurozone PMI
Asia: Philippines CPI, Indonesia GDP, India PMI, Singapore Retail Sales
Market Highlights
President Trump said he would be “substantially raising” the tariff on Indian exports to the US over India’s purchases of Russia oil, with Trump saying India is “buying massive amounts of Russian Oil… (before) selling it on the Open Market for big profits”. These latest comments follows from the announcement of 25% reciprocal tariffs on India where Trump highlighted significant non-tariff barriers in India, while at one point calling both India and Russia “dead economies”.
Whether these barrage of comments are mainly negotiating tactics against India to partly prod for changes in the Russia-Ukraine war remains to be seen. India’s Ministry of External Affairs issued a statement overnight, saying that India has been targeted by the US and EU for importing oil from Russia after the Ukraine conflict, with MEA saying the US at that time actively encouraged such imports by India to ensure global oil market stability. Meanwhile, Prime Minister Modi encouraged Indians to buy more local goods although he did not explicitly link this to tariff threats by the US. With China also another key buyer of Russia oil, it also seems strange that China was not also highlighted publicly although this likely came up during bilateral talks with the US.
From a FX market perspective, USD/INR weakened further in the offshore market on the back of these comments by Trump, with 1-month NDF rising above 88 levels at one point. We can view these secondary sanctions as either a demand shock for India or supply shock for both India and the world – a demand shock if substantial additional tariffs are placed on India’s exports to the US perhaps to the tune of 50%, or a supply shock if global oil prices rise sharply with Russia oil unable to be absorbed with India’s trade deficit also rising substantially on the back of these developments.
We shifted our INR forecast profile weaker in our latest report, and see USD/INR at 87.00 by Dec 2025 and 86.50 by March 2026, implying some INR underperformance against core G10 such as EUR and JPY (see IndiaPulse – India-US trade talks and tariffs – Delayed and denied?). We did not assume material Russia secondary sanctions and/or sharp spike in oil prices, but highlighted an alternative bear case scenario where USD/INR rises closer to 90 levels if meaningful tariffs perhaps to the tune of an additional 50% tariffs are placed on India.
