Indian Rupee falls further as oil prices extend advance
- The Indian Rupee declines further against the US Dollar as oil prices extend their rally.
- FIIs turned out to be net buyers in the Indian stock market in the last two trading days.
- Traders expect the Fed to deliver at least one interest rate hike this year.
The Indian Rupee (INR) extends its over-a-week-long downfall against the US Dollar (USD) at the start of the week. The USD/INR pair explores the uncharted territory and posts a fresh all-time high at 96.33, as a fresh upside move in oil prices has weakened the Indian Rupee further.
As of writing, the WTI Oil price is up almost 2% to near $103.00. Currencies from economies, such as India, which rely heavily on oil imports to meet their energy needs, tend to underperform in a high-oil-price environment.
Oil prices rise further amid fears of US-Iran war resumption
Over the weekend, United States (US) President Donald Trump threatened consequences against Iran, through a post on Truth Social, if the nation fails to reach a deal soon.
“For Iran, the Clock is Ticking, and they better get moving, FAST, or there won’t be anything left of them. TIME IS OF THE ESSENCE!” Trump wrote.
Negotiations between the US and Iran were stalled before US President Trump’s visit to Beijing, as Trump dismissed Tehran’s counterdemands, calling them “totally unacceptable”. In response, Iran's foreign ministry spokesperson Esmaeil Baghaei said that the proposal to the US was not “excessive”, and Washington continues to have “unreasonable demands”.
Meanwhile, a report from the New York Times (NYT) has shown that the US and Israel are preparing for coordinated attacks against Iran as soon as next week, according to The Times of Israel.
FIIs turn out to be net buyers for second straight day
According to the data published on the NSE, Foreign Institutional Investors (FIIs) remained net buyers in the Indian stock market for the second straight trading day on Friday. Overseas investors infused an investment worth Rs. 1,329.17 crore on Friday. On Thursday, FIIs poured investment worth Rs. 187.46 crore.
Though there seems to be a slight improvement in FIIs’ sentiment towards the Indian equity market, the overall sentiment is still uncertain amid concerns over India Inc.’s earnings projections due to higher oil prices.
Before Thursday, FIIs remained net sellers for seven trading days in a row, and the average selling was Rs. 4,144.01 crore.
US Dollar gains on escalating hawkish Fed bets
The US Dollar (USD) continues to outperform against its currency peers due to growing expectations that the Federal Reserve (Fed) will deliver an interest rate hike this year. According to the CME FedWatch tool, the odds of the Fed delivering at least one interest rate hike this year are 53.7%, while the rest favor the central bank maintaining status quo. This is a sharp turnaround from two interest rate cuts anticipated before the onset of the war.
Traders have priced out dovish Fed bets as oil prices have pushed the US inflation higher. The US Consumer Price Index (CPI) data showed last week that the headline inflation accelerated to 3.8% Year-on-Year (YoY) in April from 3.3% in March.
Going forward, investors will focus on Federal Open Market Committee (FOMC) minutes of the April policy meeting, which will be published on Wednesday.
Technical Analysis: USD/INR posts fresh all-time high above 96
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USD/INR jumps to near 96.33 at the start of the week. The pair maintains a clear bullish near-term bias as it holds well above the 20-day Exponential Moving Average (EMA) at 94.93.
The strong advance has pushed the 14-day Relative Strength Index close to the overbought band near 69, suggesting firm upward momentum, though the steep run-up hints that upside could become more constrained if buyers lose intensity.
On the downside, immediate support is 96.00, with a deeper corrective floor emerging at the 20-day EMA around 94.93, where trend-following demand is likely to reappear on dips. As long as USD/INR defends these supports on closing bases, the broader bullish structure remains intact despite growing risks of consolidation after the recent sharp climb. Looking up, the pair could extend its advance towards 97.00.
(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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