USD/INR recovers due to continuous FIIs selling in Indian stock market

Accelerating FIIs selling is hurting Indian Rupee

So far in March, Foreign Institutional Investors (FIIs) have remained net sellers on all trading days, and have offloaded their stake worth Rs. 66,248.74 crore, according to data from NSE. FIIs are trimming their investment amid fears that rising oil prices due to tensions in the Middle East, which involve the United States (US), Israel, and Iran, would be a key drag on Nifty50 earnings in the last quarter of the current fiscal year.

Also, an absence of signs of de-escalation in the Middle East war has weakened investors’ risk appetite, which in turn has increased the safe-haven appeal of the US Dollar.

Earlier in the day, Israel Defence Forces (IDF) announced through a post on X that it had launched a series of airstrikes on the Iranian regime’s infrastructure and Hezbollah’s infrastructure in Beirut.

Meanwhile, broader strength in the US Dollar is also strengthening the USD/INR pair. As of writing, the US Dollar Index (DXY), which gauges the Greenback’s value against six major currencies, trades marginally higher to near 100.00. On Monday, the DXY corrected sharply from its over nine-month high of 100.54 posted on Friday.

The outlook of the US Dollar remains firm as higher oil prices due to the closure of the Strait of Hormuz amid Iran conflicts have raised US inflation expectations, a scenario that discourages Federal Reserve (Fed) officials from easing monetary policy conditions.

The Fed will hold interest rates steady on Wednesday

According to the CME FedWatch tool, traders are confident that the Fed will not cut interest rates before the September policy meeting. Also, the odds of an interest rate cut in the September meeting are almost 50%.

For official cues on the US interest rate outlook, investors will focus on the Fed’s monetary policy announcement and Chair Jerome Powell’s press conference on Wednesday. Market participants will also pay close attention to the Fed’s dot plot, which shows where policymakers expect interest rates to be in the medium and long term.

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

USD/INR trades higher at around 92.90 as of writing. The near-term bias is bullish as price holds above the rising 20-day Exponential Moving Average (EMA) near 92.08 while printing a sequence of higher closes. Momentum remains positive with the 14-day Relative Strength Index (RSI) staying inside the 60.00-80.00 zone, which signals firm buying pressure rather than exhaustion at this stage.

Initial support emerges at 92.60, where the latest pullback stalled above the dynamic floor from the 20-day EMA. A break below this area would expose 92.10 as the next downside level, guarding a deeper retracement toward 91.70. On the topside, immediate resistance stands at 93.00, and a sustained move above this barrier would open the way toward the 93.50 region as the next upside objective.

(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.