USD/INR snaps three-day losing streak as oil prices recover
- The Indian Rupee corrects after a three-day winning spree against the US Dollar.
- A sharp recovery in oil prices due to renewed US-Iran tensions weighs on the Indian Rupee.
- Investors await the US NFP data for fresh cues on the Fed’s monetary policy outlook.
The Indian Rupee (INR) fails to extend its three-day winning streak against the US Dollar (USD) and corrects sharply on Friday. The USD/INR pair bounces back to near 94.56 from the two-week low of 94.03 posted on Thursday.
The Indian currency faces backlash from a sharp recovery in oil prices, following renewed fears over the sustainability of the temporary ceasefire between the United States (US) and Iran after the exchange of attacks near the Strait of Hormuz.
Oil prices recover after Iran accuses US of violating ceasefire
At the time of writing, the WTI Oil price is down 1.6% to near $93, but holds its Thursday’s recovery move from $87.50, which came after Iran accused the US of violating ceasefire terms. Tehran condemned Washington for targeting an Iranian oil tanker and another ship entering the Hormuz. “The aggressive, terrorist, and pirate US military has violated the ceasefire,” a military spokesperson said, The Guardian reported.
In response, US President Donald Trump stated that the attack was a retaliatory measure from Washington’s navy destroyers and that the ceasefire is still intact. “It's just a love tap," Trump told ABC News when asked about the strikes, adding, “The ceasefire is going. It's in effect."
A sharp recovery in oil prices has renewed concerns for currencies from economies, such as India, which rely heavily on oil imports to meet their energy needs.
Foreign Investors keep paring their stake in Indian stock market
There seems to be no relief for Indian stock markets from selling pressure by Foreign Institutional Investors (FIIs) despite a broader risk rally. FIIs are dumping their stake in Indian equity markets as higher oil prices have raised concerns over India Inc.’s earnings projections.
So far in March, FIIs have remained net sellers in three of four trading days and have pared their stake worth Rs. 6,961.75 crore.
Stronger US Dollar also revives USD/INR
The impact of a sharp recovery in the US Dollar, which came in the North American session on Thursday, has also offered support to USD/INR. As of writing, the US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, holds onto Thursday’s gains around 98.20. The DXY recovered due to the revival of concerns over the longevity of the US-Iran ceasefire.
Going forward, the major trigger for the US Dollar will be the US Nonfarm Payrolls (NFP) data for April, which will be released at 12:30 GMT. Investors will closely monitor the US NFP data to get fresh cues regarding the Federal Reserve’s (Fed) monetary policy outlook.
According to the CME FedWatch tool, there is a 74% chance that the Fed will hold interest rates at their current levels by the year-end.
Technical Analysis: USD/INR recovers from 20-day EMA
USD/INR trades higher at around 94.50 at the press time. The pair maintains a bullish near-term bias as it holds above the 20-day exponential moving average (EMA) at 94.2031. The pair is consolidating near recent highs, and the Relative Strength Index (RSI) around 56 stays in positive territory without reaching overbought conditions, suggesting upside pressure remains but with moderated momentum.
On the downside, initial support emerges at the 20-day EMA near 94.20, where a break would expose a deeper correction towards 93.00. Looking up, the pair aims to revisit its all-time high of 95.53 posted on May 5.
(The technical analysis of this story was written with the help of an AI tool.)
Indian Rupee FAQs
The Indian Rupee (INR) is one of the most sensitive currencies to external factors. The price of Crude Oil (the country is highly dependent on imported Oil), the value of the US Dollar – most trade is conducted in USD – and the level of foreign investment, are all influential. Direct intervention by the Reserve Bank of India (RBI) in FX markets to keep the exchange rate stable, as well as the level of interest rates set by the RBI, are further major influencing factors on the Rupee.
The Reserve Bank of India (RBI) actively intervenes in forex markets to maintain a stable exchange rate, to help facilitate trade. In addition, the RBI tries to maintain the inflation rate at its 4% target by adjusting interest rates. Higher interest rates usually strengthen the Rupee. This is due to the role of the ‘carry trade’ in which investors borrow in countries with lower interest rates so as to place their money in countries’ offering relatively higher interest rates and profit from the difference.
Macroeconomic factors that influence the value of the Rupee include inflation, interest rates, the economic growth rate (GDP), the balance of trade, and inflows from foreign investment. A higher growth rate can lead to more overseas investment, pushing up demand for the Rupee. A less negative balance of trade will eventually lead to a stronger Rupee. Higher interest rates, especially real rates (interest rates less inflation) are also positive for the Rupee. A risk-on environment can lead to greater inflows of Foreign Direct and Indirect Investment (FDI and FII), which also benefit the Rupee.
Higher inflation, particularly, if it is comparatively higher than India’s peers, is generally negative for the currency as it reflects devaluation through oversupply. Inflation also increases the cost of exports, leading to more Rupees being sold to purchase foreign imports, which is Rupee-negative. At the same time, higher inflation usually leads to the Reserve Bank of India (RBI) raising interest rates and this can be positive for the Rupee, due to increased demand from international investors. The opposite effect is true of lower inflation.
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