Indian Rupee extends rally amid continued FIIs buying, lower oil prices
- The Indian Rupee rallies further against the US Dollar due to multiple tailwinds.
- Lower energy prices and the continued inflow of foreign funds into the Indian stock market have strengthened the INR.
- Concerns about the AI investment outlook have improved the appeal of Indian stocks.
The Indian Rupee (INR) continues to outperform the US Dollar (USD) on the back of significant inflow of foreign funds into the Indian stock market and a continued decline in oil prices. In the opening trade, the USD/INR pair posts a fresh five-month low near 93.70.
FIIs buying remains significant in past trading days
There has been relentless buying in the Indian stock market by Foreign Institutional Investors (FIIs) in the past trading days.
So far in November, FIIs have remained net buyers in full trading days and have poured a cumulative investment worth Rs. 53,172.24 crore.
Currencies from economies, such as India, which are in their developing stage, tend to outperform when they become attractive investment spots for overseas investors.
What has made India an attractive bet for foreign investors?
According to a report from NDTV Profit, India's relative lack of massive, over-hyped Artificial Intelligence (AI) hardware/infrastructure concentration is now viewed as a defensive advantage, offering better earnings visibility and stability.
Global AI infrastructure-related stocks have seen a massive sell-off since the defeat of United States (US) Republicans in midterm elections.
Strategists at ABN Amro said after the outcome of US midterm elections that the “AI investment story acquired a political risk premium” after “disappointing guidance suggested the Democratic midterm victory could bring greater congressional oversight of AI data infrastructure investment,” undermining sentiment toward AI-related assets and broader risk appetite.
Additionally, fears that Jensen Huang's days as Nvidia CEO are numbered following reports of his affair with alleged Chinese spy Alice Huang have heightened concerns regarding the outlook of spending on AI infrastructure across the globe.
On Kalshi, speculators say there’s just a 17% chance Huang is gone by 2027. Those odds rise to 30% by 2028, and 35% by 2029. However, they think there is a 75% probability that Huang will depart by 2031, CNBC reported.
Oil prices continue to decline on US-Iran deal hopes
Oil prices have fallen significantly after remarks from US President Donald Trump pointing to no further military action against Iran.
Analysts at MUFG note that investor optimism has been further buoyed by a softer tone from Washington, after President Trump told CNN it is “highly unlikely” he will need to order fresh military strikes on Iran if talks continue to show progress. MUFG highlights that Trump also stressed the outcome still hinges on the quality of any deal, stating that “it depends on whether or not they sign a very strong agreement,” a nuance the bank sees as crucial for sustaining the recent pullback in geopolitical risk premia.
As of writing, the MCX Crude Oil contract expiring on November 19 is 0.6% higher to near Rs. 8,148, but is close to its two-month low of Rs. 7,861 posted on Tuesday.
USD/INR Technical Analysis
On Wednesday, USD/INR falls to near 93.70, extending a clear bearish bias as spot holds below the 20-day exponential moving average (EMA) at 94.69. The break and sustained trade under this short-term EMA suggest sellers remain in control, while the Relative Strength Index (RSI) near 25 signals oversold conditions that could slow the downside rather than immediately reverse it.
On the topside, the 20-day EMA at 94.69 is the meaningful resistance after the June 25 low at 94.15, and a daily close back above the dynamic brrier would be needed to ease immediate downside pressure and hint at a corrective bounce.
Looking down, the pair is likely to find suppourt near 93.00.
(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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