USD/INR stays broadly firm amid lack of foreign inflows in Indian stock market
- The Indian Rupee remains under pressure as the Indian stock market struggles to lure foreign investment.
- A significant progress in US-Iran nuclear talks could weigh on the oil price.
- The Fed is unlikely to cut interest rates in March and April.
The Indian Rupee (INR) opens on a flat note against the US Dollar (USD) on Friday, but remains close to its over three-week low. The USD/INR pair holds onto gains near 91.20 as the Indian stock market struggles to attract foreign investment.
According to data from the NSE, there seem to be no consistent inflows of overseas funds into the Indian equity market despite the announcement of a trade deal between the United States (US) and India in early February. So far this month, Foreign Institutional Investors (FIIs) have bought shares worth Rs. 895.58 crore, which represents pennies against the outflow seen in the last seven months.
On February 2, both India and the US acknowledged the trade deal announcement by President Donald Trump in which Washington agreed to cut tariffs on imports from New Delhi to 18% from 50% (which included 25% punitive tariffs).
Meanwhile, the Indian currency is also failing to capitalize on signs of easing tensions between the US and Iran. Oman's Foreign Minister, Badr al-Busaidi, said in early trade that talks between the two nations on nuclear issues have made "significant progress,” and they will resume next week in Vienna.
It seems that the absence of a meaningful impact of positive US-Iran talks on the oil price has failed to support the Indian Rupee. As of writing, WTI oil price trades 0.3% lower at near $65.25. The Indian currency is highly sensitive to changes in oil prices, given that the Indian economy relies heavily on oil imports to meet its energy needs.
On the domestic front, investors await the Q4 Gross Domestic Product (GDP) data, which will be published at 04:00 PM IST (10:30 GMT). The GDP data is expected to show that the economy expanded at an annualized pace of 7.2%, slower than 8.2% growth seen in the third quarter of 2025.
In the Asian session, the US Dollar trades marginally and is expected to end the week broadly sideways after the whole tariff tantrum. During the press time, the US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, ticks lower to near 97.70.
This week, US President Trump announced 10% global tariffs, and US Trade Representative Jamieson Greer said that Washington could raise these tariffs to 15% or above on some nations. The White House called for global levies to offset the impact of the Supreme Court ruling against Trump’s tariff policy, which came on February 20.
On the monetary policy front, traders remain confident that the Federal Reserve (Fed) will leave interest rates unchanged in its policy meetings in March and April, according to the CME FedWatch tool. Market speculation for the Fed to avoid any monetary policy adjustment in the next two meetings has been prompted by inflation remaining above the central bank’s 2% target for a long period.
On Thursday, Chicago Fed President Austan Goolsbee signaled support for several interest rate cuts this year, but cautioned against front-loading them as inflation is still above the 2% target. “Rates can come down, but don't want to front-load before inflation eases,” Goolsbee said in an interview with Fox News.
Technical Analysis: USD/INR holds gains above 91.00
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USD/INR trades almost flat near 91.20 during the press time. The pair holds a mild bullish bias as it stabilizes above the 20-day Exponential Moving Average, which has flattened and now tracks just below spot.
The 14-day Relative Strength Index (RSI) approaches 60.00, signaling positive but moderate momentum rather than an extended uptrend.
Immediate support emerges at the 20-day EMA near 90.94, with a break below exposing the recent reaction low at 90.58 and then the February 3 low at 90.15 as deeper support. On the topside, initial resistance stands at the January 22 low of 91.35, followed by the January 28 low of 91.66.
(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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