Indian Rupee gains further as US Dollar extends decline

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The Indian Rupee (INR) extends Thursday’s recovery against the US Dollar (USD) in the opening session on Friday. The USD/INR pair falls further to near 95.22 as the US Dollar weakens as the restart of the war in the Middle East between the United States (US) and Iran won’t be prolonged.

The Indian Rupee recovers further against the US Dollar as the latter underperforms.
Signs of US-Iran war de-escalation have diminished the US Dollar’s safe-haven demand.
FIIs’ buying streak in the Indian stock market comes to an end.

As of writing, the US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, trades 0.3% lower to near its three-week low of 100.60. The DXY extends its losing streak for the third trading day on Friday.

US confirms technical talks with Iran are still on

According to The Times of Israel, a US official has confirmed that technical talks with Iran remain ongoing, even as President Donald Trump has declared that the Memorandum of Understanding (MoU) with Tehran is over.

Also, US President Trump said late Wednesday that Iran still wants a deal badly, but he does not know whether it will “honor the deal”, CNBC reported.

Though the continuation of US-Iran technical talks signals signs of de-escalation between the two, investors will remain fearful of increasing aggression amid ongoing exchange of attacks.

Late Thursday, the Iranian state media confirmed that US forces struk several more locations in coastal Iran.

Fears of energy supply disruption remain elevated amid US-Iran tensions

Oil prices rebound strongly on Friday after a steep correction the previous day. The WTI Crude Oil contract expiring on July 20 is up over 1.1% to near Rs. 6,930 amid fears that Middle East conflicts could disrupt the overall energy supply.

Currencies from economies, such as India, which rely heavily on oil imports to meet their energy needs, tend to underperform in a high-oil-price environment.

FIIs turned net sellers on Thursday

After remaining net buyers in all trading days of July 3-8, Foreign Institutional Investors (FIIs) turned out to be net sellers on Thursday, offloading their stake worth Rs. 532.86 crore in the Indian stock market.

Moving forward, investors should be prepared for mixed sentiment from overseas investors toward the Indian equity market, as the earnings season of the first quarter of the financial year (FY) 2026-27 has kicked off, with quarterly results from India’s tech giant Tata Consultancy Services (TCS) on Thursday.

Technical Analysis: USD/INR slides toward 20-day EMA

USD/INR trades lower at around 95.222. Still, the pair holds a mild bullish bias as it trades above the 20-day exponential moving average (EMA) at 95.11.

The Relative Strength Index (RSI) staying inside the 40.00-60.00 zone for a long period, with signs of fatigue after a descending triangle breakout, suggests a likely corrective move ahead.

On the downside, immediate support is seen at the 20-day EMA near 95.11, ahead of the former descending trendline break around 94.69, followed by the May 7 low at 94.03. On the topside, a more meaningful resistance reference remains the original descending trendline anchor near 97.02, and only a sustained break above that area would open the door to a stronger bullish extension.

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

Indian Rupee FAQs

What are the key factors driving the Indian Rupee?

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.

How do the decisions of the Reserve Bank of India impact the Indian 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.

What macroeconomic factors influence the value of the Indian Rupee?

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.

How does inflation impact the Indian 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.

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