USD/INR clings to weekly gains as Rupee faces multiple headwinds
- The Indian Rupee underperforms against the US Dollar amid elevated oil prices.
- US-Iran diplomacy stalemate keeps oil prices higher.
- FIIs extend selling pressure in the Indian stock market.
The Indian Rupee (INR) holds onto weekly losses against the US Dollar (USD) at open on Monday. The USD/INR pair trades firmly near 94.30 as elevated oil prices, strong demand for US Dollars by importers, and escalating sell-off by overseas investors in the Indian stock market are acting as major headwinds for the Indian Rupee.
Oil prices remain elevated while US-Iran talks face fresh setback
The WTI Oil price is marginally positive around $93.60 in the Asian trade on Monday as the United States (US)-Iran diplomacy remains at a stalemate, following Washington’s refusal to visit Islamabad for another round of peace talks.
Following the cancellation of US envoys Steve Witkoff and Jared Kushner's visit to Islamabad, President Donald Trump clarified that Washington is available on the phone and doesn’t want to waste time taking an 18-hour flight for unproductive talks, Axios reported.
US President Trump added that the counteroffer by Iran's foreign minister Seyed Abbas Araghchi, received through Pakistan, was not good enough, and Washington has all the cards. Trump confirmed that the diplomatic stalemate doesn’t mean the war will resume.
Earlier in the day, a report by Axios showed that Iran has given a new proposal to the US on reopening of the Strait of Hormuz, a vital passage to almost 20% of global energy supply, and the ending of the war, with nuclear negotiations postponed for a later stage.
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.
Meanwhile, stubbornly high oil prices have increased demand for US Dollars by Indian importers, which is also weighing heavily on the Indian Rupee.
FIIs extend selling pressure in Indian stock market
There seems to be a significant increase in the selling pressure by Foreign Institutional Investors (FIIs) in the Indian stock market amid stalled US-Iran peace talks. On Friday, FIIs offloaded their stake worth Rs. 8,827.87 crore, which was higher than the combined selling amount of Rs. 8,311.99 crore being recorded in the first four trading days of the previous week.
Foreign investors remain cautious over the India Inc. earnings outlook, amid fears that higher oil prices would hit the operating margins of various companies badly.
Technical Analysis: USD/INR holds gains above 94.00
USD/INR trades firmly at around 94.30 as of writing, keeping a bullish near-term bias as spot holds above the 20-day exponential moving average (EMA) at 93.42. The pair is pressing near recent highs, and the Relative Strength Index (RSI) around 59 suggests positive but not extreme momentum, hinting that buyers still have the upper hand while conditions remain short of overbought territory.
On the downside, initial support is located at the 20-day EMA near 93.42, which acts as the primary dynamic floor and would need to give way to signal a deeper correction. As long as USD/INR holds above this level, pullbacks are likely to be viewed as corrective within the broader uptrend, with bulls looking to defend that moving average on dips and extend the advance towards the all-time high around 95.20.
(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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