Indian Rupee gains on Middle East peace hopes
- The Indian Rupee rebounds against the US Dollar on hopes of peace in the Middle East again.
- Iran confirms receiving a 10-day ceasefire proposal from the US by mediators.
- FIIs have remained net sellers in the last six trading days.
The Indian Rupee (INR) opens higher against the US Dollar on Tuesday. The USD/INR pair corrects to near 96.34 from its two-month high of 96.76 posted on Monday, as fresh hopes of de-escalation in military aggression between the United States (US) and Iran have offered support to the Indian currency.
The emergence of hopes for Middle East peace has resulted in a pause in the oil price rally, a scenario that offers support to currencies from economies, such as India, which rely heavily on oil imports to meet their energy needs.
In the opening trade, the MCX Crude Oil contract expiring on August 19 is marginally down to near Rs. 7,945. On Monday, the crude oil price corrected sharply after posting a fresh five-week high at Rs. 8,158.
Iran was offered 10-day ceasefire proposal with US
On Monday, a senior Iranian official confirmed receiving a proposal of a 10-day cessation of strikes from mediators to find ways to revive the interim deal with the US. This led to financial markets regaining confidence that negotiations between nations are still active.
Earlier in the day, an Axios report also showed that US President Donald Trump will either accept the 10-day ceasefire with Iran and resume negotiations toward an interim deal or will call for a joint full-scale military campaign with Israel against Iran.
Renewed hopes for peace in the Middle East will likely keep oil prices’ upside limited; however, the continuation of attacks between the US and Iran would increase global volatility further.
FIIs continue dumping their stake in Indian stock market
Foreign Institutional Investors (FIIs) are consistently paring their stake in the Indian stock market, extending their selling streak for the sixth trading day on Monday. In the last six trading days, overseas investors have cumulatively sold their stake worth Rs. 10,240.80 crore.
The sentiment of overseas investors toward the Indian stock market appears to have turned cautious amidst the ongoing Q1FY27 earnings season. FIIs' confidence in the Indian stock market is expected to deteriorate further as the administration has stated that it has no plans to scrap Long-Term Capital Gains (LTCG) tax on investors, a key reason behind the consistent outflow of foreign funds from the Indian equity market.
"At present, there is no such proposal under consideration. The tax policies, including capital gains tax rates, are reviewed periodically as part of the annual budgetary process, and legislative revisions are made after taking into consideration the macroeconomic parameters," Minister of State for Finance Pankaj Chaudhary said, The New Indian Express reported.
Technical Analysis: USD/INR remains firm above 20-day EMA
USD/INR trades lower at around 96.34, but is maintaining a bullish near-term bias as spot holds above the 20-period exponential moving average (EMA) at 95.73. The pair has been grinding higher over recent sessions, and the Relative Strength Index (RSI) at 62 reinforces constructive momentum without yet signaling overbought conditions.
On the downside, immediate support is offered by the 20-period EMA at 95.73, which acts as a dynamic floor for any corrective dips. Looking up, the pair aims to revisit the all-time high at around 97.10.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
Indian Rupee FAQs
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.
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.
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.
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.
