Indian Rupee recovers further as Iran deal optimism builds pressure on oil price

The Indian Rupee (INR) extends its recovery against the US Dollar (USD) on Friday. The USD/INR pair slides to near 95.90 as weakness in oil prices due to intensified optimism that the United States (US) and Iran will reach a deal soon has strengthened the Indian Rupee.

As of writing, the WTI Oil price trades 0.7% lower at around $96.27, closer to its weekly low of $94.94 posted on Thursday.

Currencies from economies, such as India, which rely heavily on oil imports to meet their energy needs, attract bids following a sharp correction in oil prices.

Final draft of US-Iran deal is prepared

On Thursday, the Iranian Labour News Agency (ILNA) reported that a final draft between Washington and Tehran has been reached with mediation from Pakistan, and a deal can be announced within the next few hours. These headlines led to a sharp recovery in riskier assets and weighed heavily on oil prices.

However, market participants are still concerned about whether a deal between the two sides will be reached, as Iran remained adamant about keeping the near-weapons-grade uranium stockpiles in Iran and the recognition of Tehran’s authority on the Strait of Hormuz.

US Secretary of State Marco Rubio has also confirmed that there had been "some good signs" in talks to end the Middle East war, but differences remain over Tehran’s uranium stockpile and controls over the waterway.

FIIs remain net sellers for third straight trading day

Overseas investors continue to dump their stakes in the Indian stock market amid concerns regarding India Inc.’s earnings projections, with oil prices still remaining elevated. On Thursday, Foreign Institutional Investors (FIIs) emerged as net sellers for the third straight trading day and offloaded their stake worth Rs. 1,891.21 crore.

Analysts at Bank of America (BofA) have stated that selling pressure from FIIs could continue till 2028, as foreign money is chasing Artificial Intelligence (AI)-linked plays elsewhere in Asia. The BofA has forecasted that India Inc.’s earnings growth could be about 8.5% in the current financial year, while markets in South Korea and Taiwan are projected to deliver stronger earnings growth.

Hawkish Fed bets support US Dollar

The US Dollar reflects broader strength even as oil prices have declined due to growing optimism on the US-Iran deal. At press time, the US Dollar Index (DXY), which gauges the Greenback’s value against six major currencies, ticks higher to near 99.25, not so far from its six-week high of 99.51.

The US Dollar remains broadly firm as traders are confident that the Federal Reserve (Fed) will not cut interest rates this year. According to the CME FedWatch tool, the odds of the Fed holding benchmark lending rates at their current levels or delivering at least one interest rate hike this year are 50.8% and 48.1%, respectively.

Technical Analysis: USD/INR sees immediate support near 20-day EMA

USD/INR falls further to near 95.90 on Friday. However, the pair maintains a bullish near-term bias as it holds above the 20-day Exponential Moving Average (EMA) at 95.40, keeping the recent uptrend intact.

The 14-day Relative Strength Index drops to near 60 after turning overbought, suggesting buyers still have control, though upside momentum has cooled down.

On the downside, immediate support is seen at the 20-day EMA around 95.40, with the current spot level itself acting as a nearby pivot as long as daily closes remain above that moving average. A sustained break beneath the 20-day EMA would hint at a deeper corrective phase towards 95.00. Looking up, the pair could aim to test 98.00 if it manages a firm break above 97.00.

(The technical analysis of this story was written with the help of an AI tool.)