Indian Rupee gains further as lower oil prices and sustained buying by FIIs lend support

The Indian Rupee extends its gains against the US Dollar as several supportive factors come together.
The INR has gained strength from falling energy prices and sustained foreign fund inflows into Indian equities.
Indian equities have become more attractive amid concerns over the outlook for AI investment.

The Indian Rupee (INR) maintains its outperformance against the US Dollar (USD), supported by sizeable foreign inflows into Indian equities and persistently falling oil prices. USD/INR touches a fresh five-month low around 93.70 in opening trade.

TMGM Analysis: Financial Market News, Economic Calendar & Market Insights

What is sustaining strong FII buying in recent sessions?

Foreign Institutional Investors (FIIs) have continued to buy Indian equities relentlessly over the past few trading sessions.

Across the full trading days in November so far, FIIs have been net buyers, with cumulative investments amounting to Rs. 53,172.24 crore.

When developing economies such as India emerge as attractive destinations for overseas investment, their currencies tend to outperform.

Why has India become an attractive proposition for foreign investors?

A report from NDTV Profit says India's relative lack of a massive, over-hyped concentration in Artificial Intelligence (AI) hardware and infrastructure is now being seen as a defensive strength, providing greater earnings visibility and stability.

Since the defeat of United States (US) Republicans in the midterm elections, global stocks linked to AI infrastructure have suffered a sharp sell-off.

Following the US midterm election result, ABN Amro strategists said the “AI investment story acquired a political risk premium” after “disappointing guidance suggested the Democratic midterm victory could bring greater congressional oversight of AI data infrastructure investment,” weakening sentiment towards AI-linked assets and broader risk appetite.

Concerns over the global outlook for AI infrastructure spending have also intensified amid fears that Jensen Huang's tenure as Nvidia CEO could be nearing its end, following reports of his affair with alleged Chinese spy Alice Huang.

CNBC reported that speculators on Kalshi put the chance of Huang leaving by 2027 at just 17%. The probability increases to 30% by 2028 and 35% by 2029, while they assign a 75% probability to his departure by 2031.

Are hopes of a US-Iran deal keeping oil prices under pressure?

Remarks by US President Donald Trump signalling no further military action against Iran have led to a substantial fall in oil prices.

A softer tone from Washington has further lifted investor optimism, according to MUFG analysts. President Trump told CNN it is “highly unlikely” he will have to order new military strikes against Iran if negotiations continue to progress. MUFG also points to Trump's emphasis on the quality of any eventual deal: “it depends on whether or not they sign a very strong agreement,” he said. The bank regards this qualification as essential to sustaining the recent easing in geopolitical risk premia.

At the time of writing, the MCX Crude Oil contract due to expire on November 19 trades 0.6% higher at around Rs. 8,148. It nevertheless remains close to Tuesday's two-month low of Rs. 7,861.

USD/INR Technical Analysis: Can Oversold Conditions Slow the Decline?

A decline towards 93.70 on Wednesday reinforces the bearish bias in USD/INR, with spot trading below the 20-day exponential moving average (EMA) of 94.69. Sellers appear to retain control following the break below this short-term EMA and continued trading beneath it. Meanwhile, the Relative Strength Index (RSI), at around 25, points to oversold conditions that could temper further losses rather than trigger an immediate reversal.

Any recovery would first face the June 25 low of 94.15, followed by significant resistance at the 20-day EMA of 94.69. A daily close above this dynamic barrier would be necessary to reduce immediate downward pressure and indicate the possibility of a corrective rebound.

On further declines, support for the pair is likely to emerge around 93.00.

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

Indian Rupee: Frequently Asked Questions

Which key factors determine movements in the Indian Rupee?

External developments have a particularly strong influence on the Indian Rupee (INR). Important drivers include Crude Oil prices, given India's heavy reliance on imported Oil; the US Dollar's value, as most trade is settled in USD; and the scale of foreign investment. The Rupee is also significantly affected by interest rates set by the Reserve Bank of India (RBI) and the central bank's direct intervention in FX markets to maintain exchange-rate stability.

How do Reserve Bank of India decisions affect the Indian Rupee?

To facilitate trade, the Reserve Bank of India (RBI) intervenes actively in forex markets to keep the exchange rate stable. It also adjusts interest rates in an effort to hold inflation at its 4% target. The Rupee typically benefits from higher interest rates because of the ‘carry trade’: investors borrow in lower-interest-rate countries and invest in countries offering relatively higher rates, earning a return from the difference.

Which macroeconomic indicators shape the Indian Rupee's value?

Inflation, interest rates, economic growth (GDP), the trade balance and foreign investment inflows all help determine the Rupee's value. Faster growth can attract additional overseas investment and raise demand for the currency, while a narrowing trade deficit will eventually strengthen it. Higher interest rates are supportive too, particularly real rates, which are interest rates adjusted for inflation. When investors are willing to take on more risk, inflows of Foreign Direct and Indirect Investment (FDI and FII) can increase, also supporting the Rupee.

How is the Indian Rupee affected by inflation?

The Rupee generally comes under pressure when inflation rises, especially when it exceeds levels in India's peer economies, because this reflects a loss of currency value through oversupply. By making exports more expensive, inflation also results in more Rupees being sold to pay for imports, weighing on the currency. However, higher inflation usually prompts the Reserve Bank of India (RBI) to increase interest rates. This can support the Rupee by attracting greater demand from international investors. Lower inflation has the opposite effect.