The Indian Rupee (INR) holds onto its 10-day losses against the US Dollar (USD) in the opening session on Tuesday. The USD/INR pair trades firmly at around 96.35, close to its all-time high of 96.62 posted on Monday, as elevated oil prices due to restricted energy flows through the Strait of Hormuz continue to weigh on the Indian currency.
During the press time, the WTI Oil price trades marginally higher at around $102.16, but is close to its over two-week high of $104.74 posted on Monday.
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.
In response to the pressure of higher crude oil prices, the Indian government has announced a hike in petrol and diesel prices by 87 and 91 paise per litre, marking the second hike in less than a week. On Friday, prices of petrol and diesel were hiked by Rs. 3/litre.
Trump says Iran wants deal badly
The oil price rally appears to have hit pause for a while as the latest comments from United States (US) President Donald Trump have signaled that a deal with Iran could be confirmed soon.
On late Monday, US President Trump said that he delayed planned strikes on Iran after a “very positive development” in talks and that there was “a very good chance” they could reach a deal, The Guardian reported. Trump also stated on Monday, in an interview with Fortune, “I can tell you one thing—they [Iran]’re dying to sign [a deal].” The same day, a spokesperson from the Iranian Foreign Ministry said, “Iran is focused on ending the war at this stage,” while confirming that negotiations through Pakistan are still going on.
FIIs continue to increase stake in Indian stock market
Foreign Institutional Investors (FIIs) have remained net buyers in the Indian stock market over the last three trading days despite concerns over India Inc.’s earnings projections amid persistently elevated oil prices. On Monday, overseas investors poured investments worth Rs. 2.813.69 crore into the Indian stock market.
In the last three trading days, FIIs have cumulatively increased their stake worth Rs. 4,330.32 crore.
Higher US Dollar also strengthens USD/INR
A higher US Dollar due to firm US Treasury yields, with traders pricing out the possibility of interest rate cuts by the Federal Reserve (Fed) this year, is also providing strength to the USD/INR pair.
During the press time, the US Dollar Index (DXY), which gauges the Greenback’s value against six major currencies, trades 0.15% higher to near 99.10. 10-year US Treasury yields are slightly down to near 4.60%, still close to their yearly high of 4.63% posted on Monday.
The CME FedWatch tool shows that the possibility of the Fed holding interest rates at their current levels by the year-end is 53%, while the rest favor at least one interest rate hike this year.
Meanwhile, investors await the Federal Open Market Committee (FOMC) minutes of the April policy meeting, which will be released on Wednesday.
Technical Analysis: USD/INR holds firmly above 20-day EMA
USD/INR trades firmly at around 96.35 as of writing. The pair extends its advance well above the 20-day exponential moving average (EMA) at 95.07, and preserves a clear bullish near-term bias.
The Relative Strength Index (RSI) at 70.13 is entering overbought territory, suggesting upside momentum is strong but increasingly stretched.
On the downside, immediate support is located at the 20-day EMA around 95.07, where buyers are likely to defend the prevailing uptrend on shallow pullbacks. A deeper correction below that dynamic floor would expose the recent breakout area closer to the mid-94s, although while price holds above the 20-day EMA, dips are likely to be viewed as corrective within the broader bullish structure. Looking up, the pair is broadly in uncharted territory, and an attempt to extend the advance toward 97.00 is more likely.
(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.
