USD/INR recovers as risks of prolong Middle East war revives
- The Indian Rupee falls to grip opening gains against the US Dollar and weakens as Trump threatens intensified military action against Iran.
- US President Trump said that the US will continue attacking Iran in the next two to three weeks.
- FIIs continue to dump their stake in the Indian stock market.
The Indian Rupee (INR) fails to hold opening strength and falls lower against the US Dollar (USD) on Thursday. The USD/INR pair recovers to near 94.50 as oil prices bounce back strongly, following threats from United States (US) President Donald Trump that military attacks on Iran could intensify in the next few weeks.
Oil prices recover as Middle East risks revive
Market sentiment has turned unfavorable for risk-sensitive assets again as comments from United States (US) President Donald Trump, in his scheduled address on Iran, signaled that Washington will intensify military action against Tehran. “We are going to hit them extremely hard over the next two to three weeks, and bring them back to the Stone Ages,” Trump said.
US President Trump didn’t rule out attacking Iran’s electricity infrastructure if it doesn’t accept a deal. “If there is no deal, we are going to hit each and every one of their electric generating plants very hard and probably simultaneously,” Trump said.
The revival of risks that the Middle East war is far from a ceasefire has boosted global oil prices. WTI oil price rallies almost 6.5%, slightly above $100 in the Asian trade. Higher oil prices are an unfavorable scenario for the Indian Rupee, given that the Indian economy relies heavily on oil imports to meet its energy needs.
FIIs continue to dump their stake in Indian stock market
Amid the risk-off impulse and higher oil prices due to Middle East conflicts, Foreign Institutional Investors (FIIs) keep offloading their stake in the Indian stock market. FIIs remained net sellers on the first day of the Financial Year (FY) 2026-27 and sold shares worth Rs. 8,331.15 crore. In March, FIIs cut their stake worth Rs. 1,22,539.89 crore.
RBI bans banks from offering INR NDFs to clients
The Indian currency attracts bids, following the announcement of additional measures by the Reserve Bank of India (RBI) to curb speculative activities.
On Wednesday, the RBI stepped up its efforts to support the currency by barring banks from offering rupee non-deliverable forwards to resident and non-resident clients and preventing companies from rebooking canceled forward contracts, Reuters reported.
However, the qualitative measures adopted by the Indian central bank to support the domestic currency against the US Dollar are unlikely to limit its downside for long, as ongoing geopolitical tensions and the consistent outflow of foreign funds from the Indian stock market have remained key drags on the Indian Rupee.
Technical Analysis: USD/INR holds 20-day EMA
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USD/INR trades higher at around 94.50 as of writing. The near-term bias is bullish amid the recent sequence of higher closes, with price holding well above the rising 20-day Exponential Moving Average (EMA), which is around 93.40.
The 14-day Relative Strength Index (RSI) has retreated from overbought extremes above 80 to the mid-60s, indicating that the positive momentum is intact but with some cooling after the sharp rally.
Initial support emerges near 93.40, where the 20-day EMA currently aligns with a recent consolidation area, and a break below this level would open the door toward the January 28 high of 92.52. A deeper weakness from there would expose the next support zone around 92.10. On the upside, immediate resistance stands at 95.00, with a sustained break targeting the peak of 96.00.
(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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