USD/INR retraces as hopes of Middle East ceasefire improves market sentiment

Energy infrastructure damage and FIIs selling might keep INR under pressure

However, fears that the damage to various energy facilities in the Gulf region due to the Middle East war could push oil prices higher again, and the consistent outflow of foreign funds from the Indian stock market could continue to weigh on the Indian Rupee.

“The war has resulted in lasting damage to infrastructure, so even if it's over soon, energy prices may well remain higher,” analysts at Capital Economics said.

So far in March, Foreign Institutional Investors (FIIs) have remained net sellers on all trading days and offloaded their stake worth Rs. 1,05,204.68 crore.

US Dollar holds ground despite Mideast optimism

Even as the market sentiment has improved amid optimism that conflicts in the Middle East won’t escalate further, the US Dollar continues to attract bids near its immediate lows as Iran keeps denying its involvement in any direct talks with the US.

In the opening trade, India’s Nifty 50 is up almost 1.7% above 23,300, and S&P 500 futures rise 0.7% to near 6,603 during the Asian session, reflecting risk-on sentiment. Meanwhile, the US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, trades 0.13% higher to near 99.32.

In addition to Iran’s denial of de-escalation talks with the US, a firm speculation that the Federal Reserve (Fed) will remain on an extended pause or tighten monetary conditions this year is also offering support to the US Dollar.

According to the CME FedWatch tool, the collective odds of the Fed holding interest rates steady in the current range of 3.50%-3.75% or raising them in the December meeting are 91.4%.

Technical Analysis: USD/INR stays firm as 20-day EMA keeps rising

USD/INR trades lower at around 94.30 at the press time. However, the near-term bias is bullish as the price holds in a firm upswing above the rising 20-day Exponential Moving Average (EMA), which is around 92.85. The recent pullback from the 94.50 region has not damaged the broader advance, as the pair continues to respect the short-term trend support and trades well above the prior consolidation band around 92.50–93.00.

The 14-day Relative Strength Index (RSI) at 72.19 remains in overbought territory, confirming strong upward momentum, although it also warns that fresh gains would stretch conditions further if the pair extends higher without consolidation.

Initial resistance lies at the recent 94.50 peak, and a daily close above this level would open the path toward the 95.00 psychological barrier as the next upside objective. On the downside, immediate support is located at 93.65, with a break exposing the 93.00 area, where prior congestion aligns with the rising 20-day EMA to form a key demand zone. A deeper correction below 93.00 would weaken the short-term bullish structure and bring 92.40 into view, but while the price holds above this band, dips are set to remain contained within an overall upward trend.

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

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.