Indian Rupee declines to two-month low as US-Iran diplomacy hopes recede
- The Indian Rupee extends its decline against the US Dollar amid firm energy prices.
- Financial markets expect the RBI to intervenes again as USD/INR breaks above the 96 mark.
- The Fed is expected to hike interest rates again in October.
The Indian Rupee (INR) slides to a fresh two-month low against the US Dollar (USD) on Tuesday, with the USD/INR pair jumping to near 96.13. The pair strengthens as the Indian currency underperforms due to fears of persistent energy supply disruption.
Oil prices have gained significantly on Tuesday as United States (US) President Donald Trump has pushed back hopes of near-term diplomacy with Iran.
In the opening trade, the MCX Crude Oil contract expiring on October 19 is up 2% to near Rs. 9,020.
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.
Trump rejects claims of sanctions relief for Iran
On Monday, the oil price came under pressure after a report from Axios showed that Washington has agreed to roll back sanctions on Iran and release frozen Iranian funds in return for concrete Iranian steps on the nuclear program.
However, US President Donald Trump has denied the report through a post on Truth.Social. “I offered them NOTHING,” Trump wrote, adding that the story is a “Hoax”.
Meanwhile, Iran's Foreign Minister Abbas Araghchi has confirmed that proposals for the reopening of the Strait of Hormuz and a complete peace with the US are being discussed with Qatari mediators and Washington’s response will be received only through them. Araghchi added that the conditions stressed by Iran's Supreme Leader must be implemented for the Strait of Hormuz to reopen.
RBI will likely intervene again to support INR
According to a Reuters report, the Reserve Bank of India (RBI) may be reluctant to see the INR break past the psychologically important 96-per-dollar mark and could intensify its intervention, having been a near-daily presence in the market in recent weeks, market participants said.
The report further added that analysts have noted that the RBI has greater firepower to do so following the recent build-up in foreign exchange reserves through Foreign Currency Non-Resident (FCNR) deposits.
US JOLTS Job Openings data awaited
Financial markets remaining increasingly confident that the Federal Reserve (Fed) will deliver more interest rate hikes this year is another key concern for the Indian currency. According to the CME FedWatch tool, there is an almost 70% chance that the Fed will hike interest rates at the October meeting.
Later in the day, investors will focus on the US JOLTS Job Openings data for August, which will be published at 14:00 GMT. The data will likely have a meaningful influence on the Fed’s interest rate expectations.
The Job Openings report is expected to show that employers posted 7.23 million fresh jobs, marginally lower than the 7.271 million in July.
USD/INR Technical Analysis
In the daily chart, USD/INR trades at 96.10, holding above the 20-day exponential moving average (EMA) at 95.68, which suggests a constructive near-term bias. The pair is consolidating near recent highs, and the Relative Strength Index (RSI) at 62.5 stays in bullish territory without yet signaling overbought conditions, hinting that upside pressure could persist while the price remains supported above the short-term EMA.
On the downside, immediate support is seen at the 20-day EMA near 95.68. As long as spot defends this underlying demand zone, buyers are likely to retain control, while any decisive break beneath the EMA would signal a deeper corrective phase toward lower recent closes. On the upside, the pair aims to revisit the all-time high at around 97.00.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
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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