USD/INR gaps higher as rising oil prices and FII selling weigh on Indian Rupee
- The Indian Rupee gaps down to near 91.20 against the US Dollar after a holiday on Thursday.
- Rising oil prices due to US-Iran tensions has weighed on the Indian Rupee.
- Investors await India-US private sector PMI data for February.
The Indian Rupee (INR) gaps down at open against the US Dollar (USD) on Friday after a holiday on Thursday. The USD/INR pair jumps to near 91.20 in the opening trade as the Indian Rupee weakens on rising Oil price and the absence of strong buying interest by foreign investors in the Indian stock market.
Oil prices have risen significantly following threats of United States (US) military action against Iran. According to a report from the Wall Street Journal (WSJ), President Donald Trump is weighing a limited military strike on Iran to pressure Tehran to agree to a nuclear deal.
Currencies from economies that rely on imports of oil to fulfill their energy needs tend to underperform in a high oil price environment.
There seems to be an absence of enthusiasm in Foreign Institutional Investors (FIIs) for increasing their stake in the Indian equity market despite the confirmation of a trade deal between the United States (US) and India. So far in February, FIIs have turned out to be net sellers and have pared their stake worth Rs. 1,076.63 crore, according to data from NSE, even as the trade deal was announced on February 2. On Thursday, overseas investors offloaded their stake worth Rs. 880.49 crore.
Meanwhile, a report from Reuters has shown that traders expect the Reserve Bank of India (RBI) to have intervened in the local and spot markets to support the Indian Rupee.
In addition to weakness in the Indian Rupee, the upbeat US Dollar is also strengthening the pair. During the press time, the US Dollar Index (DXY), which gauges the Greenback’s value against six major currencies, trades firmly near the fresh three-week high of 98.00 posted on Thursday.
The US Dollar has been outperforming its peers since the release of the Federal Open Market Committee (FOMC) Minutes of the January policy meeting on Wednesday, which showed that officials are not in a hurry to cut interest rates as inflation remains persistently above the Federal Reserve’s (Fed) 2% target. In addition to slightly hawkish FOMC Minutes, risk-off market sentiment due to US-Iran tensions has also improved the US Dollar’s appeal.
During the day, investors will focus on the US preliminary Q4 Gross Domestic Product (GDP) and the India-US private sector Purchasing Managers’ Index (PMI) data for February.
The US Bureau of Economic Analysis (BEA) is expected to show that the economy rose at an annualized pace of 3%, slower than 4.4% growth seen in the third quarter of 2025.
Technical Analysis: USD/INR jumps above 20-day EMA
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USD/INR trades sharply higher at around 91.10 as of writing. Price holds above the 20-day Exponential Moving Average (EMA) at 90.89. The average has turned higher, indicating the pullback has eased.
The 14-day Relative Strength Index (RSI) at 54.99 (neutral) is rising through the midline, backing improving bullish momentum.
The short-term bias improves as the 20-day EMA’s slope recovers, helping to cap dips and support higher lows. On the upside, the price could advance toward the January 28 low of 91.66 if it continues to hold the 20-day EMA. Looking down, the February 3 low of 90.15 will act as key support.
(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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