Indian Rupee remains firm on early signs of FIIs return
- The Indian Rupee trades firmly against the US Dollar due to multiple tailwinds.
- Lower oil prices and signs of improvement in FIIs sentiment towards the Indian stock market have strengthened the Indian Rupee.
- The Fed is expected to leave interest rates steady on Wednesday.
The Indian Rupee (INR) reflects strength against the US Dollar (USD) on Tuesday. The USD/INR pair trades lower around 94.58 as lower oil prices due to the successive reopening of the Strait of Hormuz, following the signing of a peace deal between the United States (US) and Iran, and signs of improvement in sentiment of overseas investors towards the Indian stock market have strengthened the Indian Rupee.
In the opening session, the MCX Crude Oil contract expiring on June 18 rises slightly to near 7,640, but is close to its over eight-week low of 7,550 posted on Monday.
Currencies from economies, such as India, which rely heavily on oil imports to meet their energy needs, tend to outperform when oil prices remain lower.
US-Iran signs peace deal, details awaited
On Monday, US President Donald Trump announced that a peace deal with Iran had been signed and the Strait of Hormuz had fully reopened. Trump added that details of the deal will be released shortly, but confirmed that Tehran won’t have nuclear weapons.
Investors await details of the deal to get clarification regarding whether Hormuz remains toll-free or not. The resumption of normal traffic will keep oil prices lower, a scenario that will be favorable for the Indian currency.
FIIs remain net buyers for first time in June
On Monday, Foreign Institutional Investors (FIIs) emerged as net buyers in the Indian stock market for the first time in June after diluting their stake worth Rs. 46,430.42 crore in the first two weeks. The sentiment of foreign investors towards the Indian equity market appears to have improved due to the US-Iran peace deal signing, which has eased the global risk-off impulse. In Monday’s session, FIIs bought shares worth Rs. 200.05 crore.
Investors keenly await Fed Warsh's comments on interest rate outlook
This week, the major trigger for the US Dollar will be the Federal Reserve’s (Fed) monetary policy announcement on Wednesday. According to the CME FedWatch tool, the Fed is certain to leave interest rates unchanged in the 3.50%-3.75%.
Investors will pay close attention to the Fed’s monetary policy guidance under the new Chairman Kevin Warsh, and interest and economic projections in the near-to-longer term.
US President Trump has provided significant breathing room to Chairman Warsh by giving him a free hand on decision-making, stating in recent days that he wants him to “do whatever he wants” and “be totally independent”, CNBC reported. While Trump was seen criticizing former Chairman Jerome Powell numerous times for not reducing interest rates quickly, despite inflationary pressures remaining higher.
Technical Analysis: USD/INR sees support near 94.00
USD/INR trades weakly at around 94.58, extending a corrective phase below its 20-day exponential moving average (EMA) at 95.2580, which now acts as the first topside barrier and keeps the near-term bias tilted lower.
The Relative Strength Index (RSI) at 42.6 remains below the midline, suggesting waning bullish momentum and leaving the pair vulnerable while it holds under the short-term EMA cap.
On the topside, a daily close above the 20-day EMA around 95.26 would be needed to ease immediate downside pressure and open the way for a more sustained rebound towards 96.00. Looking down, the pair could extend the decline to the May 7 low at 94.03 if it fails to hold the June 15 low at 94.43.
(The technical analysis of this story was written with the help of an AI tool.)
Indian economy FAQs
The Indian economy has averaged a growth rate of 6.13% between 2006 and 2023, which makes it one of the fastest growing in the world. India’s high growth has attracted a lot of foreign investment. This includes Foreign Direct Investment (FDI) into physical projects and Foreign Indirect Investment (FII) by foreign funds into Indian financial markets. The greater the level of investment, the higher the demand for the Rupee (INR). Fluctuations in Dollar-demand from Indian importers also impact INR.
India has to import a great deal of its Oil and gasoline so the price of Oil can have a direct impact on the Rupee. Oil is mostly traded in US Dollars (USD) on international markets so if the price of Oil rises, aggregate demand for USD increases and Indian importers have to sell more Rupees to meet that demand, which is depreciative for the Rupee.
Inflation has a complex effect on the Rupee. Ultimately it indicates an increase in money supply which reduces the Rupee’s overall value. Yet if it rises above the Reserve Bank of India’s (RBI) 4% target, the RBI will raise interest rates to bring it down by reducing credit. Higher interest rates, especially real rates (the difference between interest rates and inflation) strengthen the Rupee. They make India a more profitable place for international investors to park their money. A fall in inflation can be supportive of the Rupee. At the same time lower interest rates can have a depreciatory effect on the Rupee.
India has run a trade deficit for most of its recent history, indicating its imports outweigh its exports. Since the majority of international trade takes place in US Dollars, there are times – due to seasonal demand or order glut – where the high volume of imports leads to significant US Dollar- demand. During these periods the Rupee can weaken as it is heavily sold to meet the demand for Dollars. When markets experience increased volatility, the demand for US Dollars can also shoot up with a similarly negative effect on the Rupee.
Author
Sagar Dua
FXStreet
Sagar Dua is associated with the financial markets from his college days. Along with pursuing post-graduation in Commerce in 2014, he started his markets training with chart analysis.
