The Indian Rupee (INR) started the week on a firm footing, extending its appreciation against the US Dollar (USD) as the USD/INR pair continued its losing streak for a fourth consecutive session. The pair slipped toward 95.20, marking its lowest level in nearly two weeks, reflecting a combination of policy signals, global macro shifts, and commodity price movements. In their latest publication, Alderstone Holdings’ brokers provide a thorough analysis of this subject.
The rally in the rupee has been driven by renewed confidence in Reserve Bank of India (RBI) support, easing crude oil prices, and improving sentiment around potential progress in the US–Iran geopolitical dialogue. Together, these factors have reinforced expectations of improved foreign exchange stability in the near term.
Oil Price Volatility and US–Iran Developments Drive INR Gains
The rupee’s performance remains closely tied to movements in global crude oil prices, given India’s heavy reliance on energy imports.
Oil markets saw heightened volatility after comments from both the US and Iranian leadership. Early in the session, crude prices fell sharply after the US President stated that a US–Iran agreement was largely negotiated, including provisions related to reopening strategic maritime routes such as the Strait of Hormuz.
However, prices later recovered after Iran clarified that governance of the Strait of Hormuz remains a coastal states’ matter, introducing renewed uncertainty into supply expectations. As a result, WTI crude rebounded toward $91.60, after briefly sliding to around $89.50.
The net effect of earlier oil weakness was still supportive for the rupee, as lower crude prices typically reduce India’s current account pressure, improving demand for INR in forex markets. Even partial optimism around a US–Iran resolution helps ease concerns over energy supply shocks, a historically critical driver of rupee depreciation.
US Dollar Weakness Adds Additional Tailwind
Another key factor behind the rupee’s strength is the broader softening of the US Dollar Index (DXY), which declined by approximately 0.3% to near 99.00.
The dollar’s weakness has been fueled by reduced demand for safe-haven assets as geopolitical risk perceptions eased. Simultaneously, expectations of a more accommodative Federal Reserve (Fed) stance have gained traction.
According to the CME FedWatch Tool, the probability of at least one Fed rate hike this year has fallen to roughly 57%, down from 67% just a few sessions earlier. This repricing of monetary expectations has weakened the USD yield advantage, placing downward pressure on the greenback.
A softer dollar environment typically supports emerging market currencies, including the rupee, as global liquidity conditions improve and capital flows rebalance toward higher-yielding assets.
Foreign Institutional Investors Continue Selling Indian Equities
Despite currency gains, Foreign Institutional Investors (FIIs) have remained net sellers in Indian equity markets for four consecutive sessions.
Cumulative outflows have reached approximately ₹10,386.52 crore, reflecting continued caution over India Inc.’s earnings outlook amid elevated input costs and energy price volatility.
Persistent FII selling suggests that while currency markets are stabilizing, equity risk sentiment remains fragile. Investors appear concerned that sustained energy price pressures and global uncertainty could weigh on corporate profit margins, particularly in energy-intensive sectors.
This divergence between currency strength and equity outflows highlights a complex macro backdrop where forex stability does not necessarily translate into broader capital inflows.
Technical Analysis: USD/INR Shows Mean-Reversion Toward Key EMA
From a technical standpoint, the USD/INR pair is undergoing a mean-reversion move toward its 20-day Exponential Moving Average (EMA), currently positioned near 95.3719.
The spot price around 95.20 indicates that the pair is testing short-term support after a sharp upward phase earlier in the month. The correction suggests that bullish momentum is temporarily cooling, with price action stabilizing around key technical levels.
The Relative Strength Index (RSI) near 53 reflects a neutral-to-slightly positive momentum bias, indicating that neither bulls nor bears have full control of near-term direction. However, the slight bullish tilt suggests that downside momentum is not yet fully dominant.
On the downside, a sustained break below 95.00 could accelerate selling pressure, potentially exposing the pair to levels near 94.00, where stronger historical support is expected.
On the upside, recovery above the May 22 high of 96.37 would be required to reassert bullish momentum. A successful breakout could open the path toward the 97.00 zone, signaling a broader trend reversal in favor of USD strength.
Outlook: Balanced Risks with Short-Term INR Bias
Overall, the rupee’s near-term trajectory is shaped by a delicate balance between RBI policy signaling, global oil dynamics, and US dollar weakness. While intervention rhetoric from the RBI and softer crude prices provide immediate support, risks remain from volatile geopolitics and sustained FII outflows.
For now, the INR retains a mild strengthening bias, but its sustainability will depend on whether external tailwinds, especially from oil markets and US–Iran negotiations, continue to hold.
