The Indian Rupee (INR) recovers early losses and turns positive against the US Dollar (USD) during India’s afternoon trading hours on Thursday. The USD/INR pair slides to near 94.34 amid the selling pressure in the oil price, following headlines that there could be a breakthrough regarding the reopening of the Strait of Hormuz, a vital passage to almost 20% of global energy supply, soon.
Oil price slides further on possible US-Iran breakthrough
Indian Rupee has attracted significant bids against the US Dollar as the oil price plummets. As of writing, the WTI Oil price is down almost 3% to near $90.00. During the European trade, Al-Hadath, sister channel to Al Arabiya, stated on its X handle that intense communications between the United States (USD) and Iran are ongoing to gradually reopen the Strait of Hormuz, according to sources. The post also stated that there could be a “breakthrough in US-Iran peace talks in coming hours for ships stranded in the Strait”.
Currencies from economies, such as India, that rely on oil imports to meet their energy needs appreciate when oil prices start declining.
Market participants were already confident regarding the US-Iran deal. On Wednesday, US President Donald Trump said, “They [Iran] want to make a deal. We’ve had very good talks over the last 24 hours, and it’s very possible that we’ll make a deal up there,” Trump said, adding: “I think we won,” the BBC reported.
Growth outlook concerns dampen FIIs’ sentiment
Despite the dominance of risk flows in global markets amid optimism over the US-Iran peace deal, Foreign Institutional Investors (FIIs) continue to dump their stake in the Indian stock market. So far in May, FIIs have remained net sellers in two of the three trading days and have offloaded their stake worth Rs. 6,620.86 crore.
Increased concerns over India’s growth and inflation outlook amid expectations that energy prices will remain higher for a prolonged period, even if the US and Iran reach a peace plan today, are hurting the sentiment of foreign investors toward the Indian stock market.
US Dollar faces pressure
Weakness in the US Dollar, following positive remarks regarding the US-Iran negotiations, has also weighed on the US Dollar. At press time, the US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, trades 0.12% lower at around 97.90 and is close to its over two-month low of 97.62 posted on Wednesday.
Going forward, investors will pay close attention to the US Nonfarm Payrolls (NFP) data for April, which will be released on Friday, to get fresh cues on the Federal Reserve’s (Fed) monetary policy outlook. The employment report is expected to show that the economy created 60K fresh jobs.
Technical Analysis: USD/INR extends decline to near 20-day EMA
USD/INR trades lower at around 94.25 at the time of writing. The near-term trend of the pair has become uncertain as it has corrected to near the 20-day exponential moving average (EMA), which is at 94.17.
The Relative Strength Index (RSI) has eased to near 53.5 from overbought territory and now sits in neutral ground, suggesting the uptrend is pausing rather than reversing.
On the downside, immediate support is located at the 20-day EMA around 94.17, where a daily close below would hint at a deeper correction toward prior breakout areas in the 93s. As long as USD/INR defends this moving average on a closing basis, dips are likely to find buyers, leaving the broader topside bias intact even as momentum cools. Looking up, the all-time high of 95.53 posted on Tuesday will remain a barrier.
(The technical analysis of this story was written with the help of an AI tool.)
Risk sentiment FAQs
In the world of financial jargon the two widely used terms “risk-on” and “risk off” refer to the level of risk that investors are willing to stomach during the period referenced. In a “risk-on” market, investors are optimistic about the future and more willing to buy risky assets. In a “risk-off” market investors start to ‘play it safe’ because they are worried about the future, and therefore buy less risky assets that are more certain of bringing a return, even if it is relatively modest.
Typically, during periods of “risk-on”, stock markets will rise, most commodities – except Gold – will also gain in value, since they benefit from a positive growth outlook. The currencies of nations that are heavy commodity exporters strengthen because of increased demand, and Cryptocurrencies rise. In a “risk-off” market, Bonds go up – especially major government Bonds – Gold shines, and safe-haven currencies such as the Japanese Yen, Swiss Franc and US Dollar all benefit.
The Australian Dollar (AUD), the Canadian Dollar (CAD), the New Zealand Dollar (NZD) and minor FX like the Ruble (RUB) and the South African Rand (ZAR), all tend to rise in markets that are “risk-on”. This is because the economies of these currencies are heavily reliant on commodity exports for growth, and commodities tend to rise in price during risk-on periods. This is because investors foresee greater demand for raw materials in the future due to heightened economic activity.
The major currencies that tend to rise during periods of “risk-off” are the US Dollar (USD), the Japanese Yen (JPY) and the Swiss Franc (CHF). The US Dollar, because it is the world’s reserve currency, and because in times of crisis investors buy US government debt, which is seen as safe because the largest economy in the world is unlikely to default. The Yen, from increased demand for Japanese government bonds, because a high proportion are held by domestic investors who are unlikely to dump them – even in a crisis. The Swiss Franc, because strict Swiss banking laws offer investors enhanced capital protection.
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