Indian Rupee gains further on sustained buying by FIIs and lower oil prices

Multiple supportive factors extend the Indian Rupee’s rally against the US Dollar.
Sustained foreign inflows into Indian equities and cheaper energy have bolstered the INR.
Indian equities have become more attractive as concerns grow over the AI investment outlook.

USD/INR hits a fresh five-month low near 93.70 in opening trade. Substantial foreign inflows into Indian equities and persistently falling oil prices continue to support the Indian Rupee (INR), which is outperforming the US Dollar (USD).

FIIs Maintain Heavy Buying in Recent Sessions

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

Foreign Institutional Investors (FIIs) have bought Indian equities persistently over recent trading sessions.

Cumulative investment by FIIs has reached Rs. 53,172.24 crore so far in November. They have been net buyers in every full trading session during the month.

When overseas investors favour developing economies such as India as investment destinations, their currencies tend to outperform.

AI Concerns Strengthen India’s Appeal to Foreign Investors

A report from NDTV Profit says India’s relatively limited concentration of large-scale, over-hyped Artificial Intelligence (AI) hardware and infrastructure is now seen as a defensive strength. It offers greater earnings visibility and stability.

Since United States (US) Republicans lost the midterm elections, AI infrastructure-related shares worldwide have suffered a sharp sell-off.

Following the US midterm election result, strategists at ABN Amro said the “AI investment story acquired a political risk premium”. They attributed this to the fact that “disappointing guidance suggested the Democratic midterm victory could bring greater congressional oversight of AI data infrastructure investment,” weakening sentiment towards AI-related assets and wider risk appetite.

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

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

US-Iran Deal Hopes Extend Oil Price Decline

Remarks by US President Donald Trump suggesting there would be no further military action against Iran have driven a substantial fall in oil prices.

A softer tone from Washington has further lifted investor optimism, according to analysts at MUFG. President Trump told CNN it is “highly unlikely” he will need to order new military strikes on Iran if negotiations keep progressing. MUFG also points to Trump’s emphasis on the quality of any deal, with the president stating that “it depends on whether or not they sign a very strong agreement,”. The bank considers that qualification critical to sustaining the recent decline in geopolitical risk premia.

At the time of writing, the MCX Crude Oil contract expiring on 19 November is up 0.6% at around Rs. 8,148. It nevertheless remains close to Tuesday’s two-month low of Rs. 7,861.

93.70: USD/INR Technical Analysis Points to Continued Weakness

USD/INR declines to around 93.70 on Wednesday. Trading below the 20-day exponential moving average (EMA) at 94.69 reinforces the pair’s clear bearish bias. The break below this short-term EMA and sustained trading beneath it indicate that sellers retain control. With the Relative Strength Index (RSI) near 25, however, oversold conditions could temper further losses rather than trigger an immediate reversal.

Initial upside resistance lies at the 25 June low of 94.15, followed by the more significant 20-day EMA at 94.69. A daily close above that dynamic barrier would be required to relieve immediate downward pressure and signal a corrective rebound.

On the downside, support is likely to emerge around 93.00.

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

Indian Rupee: Key Questions Answered

Indian Rupee: Main Exchange Rate Drivers

External developments have a particularly strong influence on the Indian Rupee (INR). Key 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 foreign investment levels. The Rupee is also heavily influenced by interest rates set by the Reserve Bank of India (RBI) and the central bank’s direct intervention in FX markets to stabilise the exchange rate.

RBI Policy and Its Effect on the Indian Rupee

To facilitate trade, the Reserve Bank of India (RBI) intervenes actively in foreign exchange markets to keep the exchange rate stable. It also adjusts interest rates to keep inflation at its 4% target. Higher rates generally support the Rupee through the ‘carry trade’. Under this strategy, investors borrow in lower-interest-rate countries and invest in countries offering relatively higher rates, earning the difference.

Macroeconomic Drivers of 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 increase demand for the currency. A narrowing trade deficit will eventually strengthen the Rupee. Higher interest rates also provide support, particularly higher real rates, which are interest rates minus inflation. Greater risk appetite can attract more Foreign Direct and Indirect Investment (FDI and FII), further benefiting the Rupee.

Inflation’s Effect on the Indian Rupee

Inflation generally weakens the Rupee when it rises, particularly when it exceeds levels in India’s peer economies, because it reflects currency devaluation through oversupply. Rising inflation also makes exports more expensive, prompting additional Rupee selling to pay for foreign imports and weighing on the currency. However, higher inflation typically prompts the Reserve Bank of India (RBI) to raise interest rates. By attracting greater demand from international investors, those increases can support the Rupee. Lower inflation has the opposite effects.