The Indian Rupee (INR) opens higher against the US Dollar (USD) after a holiday the previous day due to Dr. Baba Saheb Ambedkar Jayanti. The USD/INR pair falls to near 93.20 as a sharp decline in the oil price and upbeat market sentiment due to growing expectations that the United States (US) and Iran could reach a permanent ceasefire soon have improved the Indian Rupee’s appeal.
Trump expects war with Iran to be very close to being over
Earlier in the day, US President Donald Trump said in an interview with Fox Business, “I think it’s close to over, yeah. I view it as very close to being over,” when asked about how long the war with Iran will remain.
US President Trump also said to The New York Post on Tuesday that negotiation teams from Washington and Tehran could resume talks in Pakistan in the next two days.
Positive commentary from US President Trump over a permanent truce with Iran, despite the first round of talks ending without a breakthrough, has fuelled market sentiment, diminished the appeal of safe-haven assets, and weighed on the oil price.
As of writing, the US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, ticks higher to near 98.15, but is still close to its almost seven-week low of 98.00.
WTI Oil price slides below $90.00 on hopes that the US-Iran truce would ease supply crisis; however, market experts worry that supply constraints will remain for longer due to significant damage to energy infrastructure in the Middle East.
The appeal of currencies from economies, such as India, which rely heavily on oil imports to meet their energy needs, improves when oil prices start declining after a healthy run.
The pace of FIIs selling cools down
Since the announcement of the two-week ceasefire between the US and Iran, the amount of daily selling by overseas investors in the Indian stock market has cooled down. So far in April, Foreign Institutional Investors (FIIs) have remained net sellers in seven out of eight trading days and have pared their stake worth Rs. 40,955.81 crore. However, the stake offloaded since the two-week truce announcement on April 7 midnight was Rs. 5,834.25 crore, one-fifth of the amount recorded in the first week of this month.
In Wednesday’s session, investors will focus on the WPI Inflation data for March. Inflation at the wholesale level is estimated to have grown at an annualized pace of 3%, faster than 2.13% in February.
Technical Analysis: USD/INR holds key 20-day EMA
USD/INR trades lower at around 93.25 in the opening session on Wednesday. The pair holds a modest bullish bias as spot remains above the 20-day Exponential Moving Average (EMA) at around 93.10. The recovery from last week’s trough is underpinned by this dynamic support, while the 14-day Relative Strength Index around 52.7 suggests neutral-to-slightly positive momentum rather than an overstretched advance.
On the downside, the 20-day EMA at 93.09 is the first key support to watch; a daily close below this level would weaken the constructive tone and open the door to a deeper correction toward the January high of 92.29. Looking up, the pair could advance towards the all-time high of 95.15 if it manages to recover sustainably above the 94.00 mark.
(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.